COMMUNITY FINANCIAL SYSTEM, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) primarily reviews the financial condition and results of operations of Community Financial System, Inc. (the “Company” or “CFSI”) as of and for the three and six months ended June 30, 2024 and 2023, although in some circumstances the first quarter of 2024 is 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 40. All references in the discussion of the financial condition and results of operations refer to the consolidated position and results of the Company and its subsidiaries taken as a whole. Unless otherwise noted, the term “this year” and equivalent terms refers to results in calendar year 2024, “last year” and equivalent terms refer to calendar year 2023, “second quarter” refers to the three months ended June 30, 2024, “YTD” refers to the six months ended June 30, 2024, and earnings per share (“EPS”) figures refer to diluted EPS. This MD&A contains certain forward-looking statements with respect to the financial condition, results of operations, and business of the Company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set herein under the caption “Forward-Looking Statements” on page 67. Critical Accounting Policies and Estimates As a result of the complex and dynamic nature of the Company’s business, management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations. The policy decision process not only ensures compliance with the current accounting principles generally accepted in the United States of America (“GAAP”), but also reflects management’s discretion with regard to choosing the most suitable methodology for reporting the Company’s financial performance. It is management’s opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity in the selection process. These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period. Actual results could meaningfully differ from these estimates. Management considers its critical accounting estimates those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company’s financial condition or results of operations. Management believes that the critical accounting estimates include the allowance for credit losses; actuarial assumptions associated with the pension, post-retirement and other employee benefit plans; and the carrying value of goodwill and other intangible assets. A summary of the critical accounting policies and estimates used by management is disclosed in the MD&A on pages 32-34 of the most recent Form 10-K (fiscal year ended December 31, 2023) filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024, and there have been no material changes other than those described below regarding the Allowance for Credit Losses. A summary of new accounting policies used by management is disclosed in Note C, “Accounting Policies” on page 11 of this Form 10-Q. 41 Table of Contents Allowance for Credit Losses The allowance for credit losses (“ACL”) represents management’s judgment of an estimated amount of lifetime losses expected to be incurred on outstanding loans at the balance sheet date. This is estimated using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. The determination of the appropriateness of the ACL is complex and applies significant and highly subjective estimates. The ACL is measured on a collective (pooled) basis for loan segments that share similar risk characteristics, including collateral type, credit ratings/scores, size, duration, interest rate structure, origination vintage and payment structure. The Company utilizes three methods for calculating the ACL: cumulative loss, vintage loss and line loss. Historical credit loss experience provides the basis for the estimation of expected future credit losses in all three methodologies. Qualitative adjustments are made for differences in loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, acquisition status, current levels of delinquencies, net charge-offs and risk ratings, as well as actual and forecasted macroeconomic variables. Macroeconomic data includes unemployment rates, changes in collateral values such as home prices, commercial real estate prices including office property-specific price forecasts, office property-specific vacancy rates, automobile prices, gross domestic product, median household income net of inflation and other relevant factors. Management utilizes judgment in determining and applying the qualitative factors and weighting the economic scenarios used, which include baseline, upside and downside forecasts. During the first quarter of 2024, the Company updated the ACL model to add 2023 results into the historical data used for calculating the quantitative and qualitative factors as part of the annual model update procedures. During the second quarter of 2024, the Company updated the ACL model to incorporate office property-specific price forecasts and office property-specific vacancy forecasts to provide greater precision to the model. One of the most significant estimates and judgments influencing the results of the ACL calculation is the macroeconomic forecasts. Changes in these economic forecasts could significantly affect the estimated expected credit losses and lead to materially different amounts from one period to the next. To illustrate the sensitivity of the ACL calculation to these economic forecasts, management performed a hypothetical sensitivity analysis using a weighting of 100% to the downside forecast, rather than the existing weighting of baseline, upside and downside of 40%, 30% and 30%, respectively. The scenario-weighted average unemployment rate and GDP growth forecasts used in the ACL model at June 30, 2024 were 4.6% and 1.8%, respectively, compared to 4.5% and 1.9% at March 31, 2024, respectively. The hypothetical downside forecast includes assumptions of a weakening economy represented by a cumulative decline in real GDP of 2.6%, enhanced geopolitical tensions, elevated inflation, a peak unemployment rate of 8.0% and an average unemployment rate of 6.6%. The Company calculated that this hypothetical scenario would increase the ACL and provision for credit losses as of and for the three and six months ended June 30, 2024 by approximately $4.6 million, and decrease net income by $3.5 million (net of tax). This change is reflective of the sensitivity of the various economic factors used in the ACL model. The resulting difference is not intended to represent an expected increase in allowance levels, as future conditions are uncertain and there are several other quantitative and qualitative factors that will also fluctuate concurrent with changing economic conditions, which would affect the results of the ACL calculation. The impact that the economic factors have on the model is affected by the upside or downside severity of the scenarios used, the product type mix, and the interaction of the economic factors with other quantitative and qualitative factors in the model, as changes in any particular factor or input may not occur at the same rate or be directionally consistent across all loan segments. Improvements in one factor may offset deterioration in other factors, both qualitative and quantitative. The third-party downside economic forecast used in the hypothetical scenario described does not predict a severe economic downturn, but rather a moderate recessionary environment. The Company’s geographic distribution of loans primarily outside of major metropolitan areas, combined with low statistical correlation between its historical losses and national economic indicators, results in changes to the allowance that are less significant as compared to national economic activity. 42 Table of Contents Supplemental Reporting of Non-GAAP Results of Operations The Company also provides supplemental reporting of its results on an “operating” or “tangible” basis. During the first quarter of 2024, the Company modified the presentation of its non-GAAP operating results to exclude amortization of intangible assets which the Company believes better reflects core performance across its segments and enhances comparability to both banking and non-banking organizations. The prior period has been recast to conform to the current period presentation. Results on an “operating” basis exclude the after-tax effects of acquisition expenses, litigation accrual, gain on debt extinguishment, loss on sales of investment securities, unrealized gain (loss) on equity securities and amortization of intangible assets. Results on a “tangible” basis exclude goodwill and intangible asset balances, net of accumulated amortization and applicable deferred tax amounts. Although these items are non-GAAP measures, the Company’s management believes this information helps investors and analysts measure underlying core performance and improves comparability to other organizations that have not engaged in acquisitions or restructuring activities. In addition, the Company provides supplemental reporting for “operating pre-tax, pre-provision net revenues,” which excludes the provision for credit losses, acquisition expenses, litigation accrual, gain on debt extinguishment, loss on sales of investment securities, unrealized gain (loss) on equity securities and amortization of intangible assets from income before income taxes. Although operating 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 or restructuring activities. The Company also provides supplemental reporting of its interest income, net interest income and net interest margin on a fully tax-equivalent (“FTE”) basis, which includes an adjustment to interest income and net interest income that represents taxes that would have been paid had nontaxable investment securities and loans been taxable. Although fully tax-equivalent interest income, net interest income and net interest margin are non-GAAP measures, the Company’s management believes this information helps enhance comparability of the performance of assets that have different tax liabilities. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 14. Executive Summary The Company’s business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services, including employee benefit services, insurance services and wealth management services, to retail, commercial, institutional and municipal customers. The Company’s banking subsidiary is Community Bank, N.A. (the “Bank” or “CBNA”). The Company’s Benefit Plans Administrative Services, Inc. (“BPAS”) subsidiary is a leading provider of employee benefits administration, trust services, collective investment fund administration and actuarial consulting services to customers on a national scale. In addition, the Company offers comprehensive financial planning, trust administration and wealth management services through its Community Bank Wealth Management Group operating unit and insurance services through its OneGroup NY, Inc. (“OneGroup”) operating unit. The Company’s core operating objectives are: (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) increase the noninterest component of total revenues through growth in existing banking, employee benefit services, insurance services and wealth management services business units, and the acquisition of additional financial services and banking businesses, (iv) 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, and (v) utilize technology including robotic process automation 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 results and financial condition include, but are not limited to: net income and earnings per share; return on assets and equity; components of net interest margin; noninterest revenues; noninterest expenses; credit metrics; loan and deposit growth; capital management; performance of individual banking and financial services units; performance of specific product lines and customers; liquidity and interest rate sensitivity; enhancements to customer products and services and their underlying performance characteristics; technology advancements; market share; peer comparisons; and the performance of recently acquired businesses. ​ 43 Table of Contents Second quarter 2024 net income decreased $0.4 million, or 0.8%, compared to the second quarter of 2023, while YTD net income increased $34.7 million, or 64.2% compared to the equivalent 2023 timeframe. Earnings per share of $0.91 for the second quarter of 2024 was $0.02 more than the second quarter of 2023, while 2024 YTD earnings per share of $1.67 was $0.67 higher than 2023 YTD earnings per share. Although net income decreased slightly between the quarterly periods due to increases in noninterest expenses, the provision for credit losses and income taxes, partially offset by increases in noninterest revenues and net interest income, earnings per share increased between the quarterly periods as the number of fully-diluted shares outstanding decreased reflective of share repurchases between the periods. The YTD increase 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. In addition, increases in income taxes, noninterest expenses and the provision for credit losses and a decrease in net interest income were partially offset by an increase in noninterest revenues excluding realized investment security losses and a decrease in the number of fully-diluted shares outstanding. Second quarter and YTD operating net income, a non-GAAP measure, decreased $1.5 million, or 2.9%, as compared to the second quarter of 2023 and decreased $7.4 million, or 7.3%, compared to June YTD 2023. Second quarter and YTD operating earnings per share, a non-GAAP measure, decreased $0.01 compared to the second quarter of 2023 and decreased $0.11 compared to June YTD 2023. Second quarter and YTD operating pre-tax, pre-provision net revenue per share, a non-GAAP measure, increased $0.05 compared to the second quarter of 2023 and was consistent with June YTD 2023. Net interest margin decreased 13 basis points between the second quarter of 2023 and the second quarter of 2024 and decreased 18 basis points on a YTD basis. Fully tax-equivalent net interest margin, a non-GAAP measure, decreased 14 basis points between the second quarter of 2023 and the second quarter of 2024 and decreased 18 basis points on a YTD basis. The yield on average interest-earning assets increased 53 basis points compared to the prior year second quarter and 58 basis points compared to the prior YTD period, as the yield on average loans and average investments both improved. The yield on average loans for the second quarter increased 63 basis points compared to the second quarter of 2023 and 64 basis points between comparable YTD periods. The increase in yield on average loans was driven by higher interest rates on new loans, an increase in variable and adjustable-rate loan yields reflective of higher market interest rates, including the prime rate, and a high level of new loan originations. The yield on average investments, including cash equivalents, increased six basis points compared to the prior year’s second quarter and 11 basis points on a YTD basis, reflective of the sales and maturities of certain lower-yielding available-for-sale investment securities and the purchases of certain higher-yielding government agency mortgage-backed securities between the periods. The Company’s total cost of funds increased 70 basis points from last year’s second quarter and 79 basis points YTD, as the rate paid on interest-bearing deposits and the rate paid on borrowings both increased largely due to market-driven increases in deposit and borrowing rates, as well as the higher proportion of funding coming from comparatively higher rate time deposits and external borrowings. Loan balances increased on both an average and ending basis as compared to the prior year second quarter and YTD period, reflective of continued strong organic loan growth. Deposit balances also increased on both an average and ending basis as compared to the second quarter of 2023 and YTD due primarily to growth in municipal deposit balances. Investment balances, including cash equivalents, decreased on both an average and ending basis as compared to the prior year second quarter and YTD period, primarily due to the maturities and sales of certain available-for-sale investment securities between the periods. Borrowing balances increased on both an average and ending basis compared to the second quarter of 2023 and YTD reflective of the Company securing certain fixed rate Federal Home Loan Bank (“FHLB”) term borrowings between the periods to support the funding of continued loan growth. Reflective of an increase in loans outstanding and a stable economic forecast, the Company recorded a $2.7 million provision for credit losses during the second quarter and $8.9 million for YTD 2024 resulting in a $2.0 million and $4.6 million higher provision for credit losses than comparable prior year periods, respectively, as the Company increased credit loss reserves primarily related to the business lending and consumer indirect portfolios. Asset quality remained strong and favorable relative to long-term historical averages during the second quarter and the first six months of 2024. Net charge-offs were $1.3 million, or an annualized 0.05% of average loans, for the second quarter and $4.1 million, or an annualized 0.08% of average loans, for the first six months of 2024, compared to net charge-offs of $0.7 million, or an annualized 0.03% of average loans, for the prior year’s second quarter and $2.2 million, or an annualized 0.05% of average loans, for the first six months of 2023. The nonperforming loan ratio of 0.50% at June 30, 2024 increased 14 basis points from June 30, 2023 primarily driven by the business loans associated with four customers being downgraded from accruing to nonaccrual status and remained consistent with one quarter prior. The 30 to 89 day delinquent loan ratio remained low at 0.45%, down from 0.47% at the end of the second quarter of 2023 and up slightly from 0.43% at the end of the prior quarter. 44 Table of Contents Banking noninterest revenues, comprised of deposit service fees, mortgage banking and other banking services revenues, increased $1.9 million, or 10.6%, as compared to the prior year’s second quarter, and increased $3.7 million, or 10.9%, between the comparable YTD periods. The growth between both periods was primarily due to increases in mortgage banking revenues that reflected higher sales volumes of secondary market eligible residential mortgage loans. Financial services business revenues, comprised of employee benefit services, insurance services and wealth management services revenues, increased $5.8 million, or 12.1%, as compared to the prior year’s second quarter and increased $8.7 million, or 8.9%, compared to the prior YTD period, reflecting revenue growth in all three segments between both periods. Noninterest expenses increased $6.0 million, or 5.3%, between the second quarter of 2023 and the second quarter of 2024 and increased $10.0 million, or 4.4%, between June YTD 2023 and June YTD 2024. The increases were primarily driven by salaries and employee benefits that increased $5.4 million, or 8.0%, and $7.0 million, or 5.0%, for the second quarter and YTD periods of 2024, respectively, as compared to the corresponding periods of 2023, reflective of merit and market-related increases in employee wages and acquisitions between the periods, partially offset by the impact of the previously announced retail customer service workforce optimization plan and a decrease in employee retirement-related severance expense. The remaining net increase in noninterest expenses were mainly due to higher data processing and communications expenses reflective of the Company’s continued investment in customer-facing and back-office technologies including investments in additional technology to enhance its cybersecurity infrastructure combined with an increase in other expenses driven by increases in insurance expenses and a decrease in the net periodic pension benefit credit due to lower non-service related components. The Company’s deposit base and liquidity position continues to be strong, as the Company had total immediately available liquidity sources of $4.44 billion at the end of the second quarter of 2024, more than double its estimated uninsured deposits, net of collateralized and intercompany deposits. Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of total deposits at the end of the second quarter. The Company’s deposit base is well diversified across customer segments, which as of June 30, 2024 was comprised of approximately 61% consumer, 26% business and 13% municipal, and broadly dispersed, illustrated by an average deposit balance per account that was under $20,000. Since the Federal Reserve began raising the federal funds rate in March 2022 in an effort to combat inflation, the cycle-to-date deposit beta (change in the Company’s cost of funds as a proportion of the change in the federal funds rate) for the Company is 22% and the cycle-to-date total funding beta is 24% of the cumulative 525 basis point increase in the federal funds rate. The lower betas are reflective of a comparatively high proportion of non-interest bearing deposits, representing approximately 28% of total ending second quarter deposits, and the composition and stability of the customer base. In addition, more than 66% of the Company’s total deposits were in noninterest checking, interest checking and savings accounts at the end of the second quarter. The Company did not utilize brokered or wholesale deposits. Net Income and Profitability As shown in Table 1, net income for the second quarter and June YTD of $47.9 million and $88.8 million, respectively, decreased $0.4 million, or 0.8%, as compared to the second quarter of 2023 and increased $34.7 million, or 64.2%, compared to June YTD 2023. Earnings per share of $0.91 for the second quarter was $0.02 higher than the second quarter of 2023, while earnings per share for the first six months of 2024 of $1.67 was $0.67 higher than the first six months of 2023. The decrease in net income for the quarter was the result of increases in noninterest expenses, the provision for credit losses and income taxes, partially offset by increases in net interest income and noninterest revenues, while the increase in earnings per share for the quarter was the result of a decrease in fully diluted shares outstanding, which more than offset the slight decline in net income. The increase in net income and earnings per share for the YTD period as compared to the prior year was the result of an increase in noninterest revenues, primarily due to the realized loss on the sales of investment securities that was recognized in the first quarter of 2023 as part of a balance sheet repositioning, as well as an increase in all other noninterest revenues and a decrease in fully diluted shares outstanding, partially offset by an increase in noninterest expenses, income taxes and the provision for credit losses, as well as a decrease in net interest income. Operating net income, a non-GAAP measure, of $50.5 million and $94.3 million for the second quarter and June YTD 2024, respectively, decreased $1.5 million, or 2.9%, as compared to the second quarter of 2023 and decreased $7.4 million, or 7.3%, compared to June YTD 2023. Operating earnings per share, a non-GAAP measure, of $0.95 for the second quarter was down $0.01 compared to the second quarter of 2023, while operating earnings per share of $1.77 for the first six months of 2024 was down $0.11 compared to the first six months of 2023. See Table 14 for Reconciliation of GAAP to Non-GAAP Measures. 45 Table of Contents As reflected in Table 1, second quarter net interest income of $109.4 million increased $0.1 million, or 0.1%, from the comparable prior year period. The quarterly improvement resulted from an increase in the balance of and yield on interest-earning assets, partially offset by an increase in the balance of and rate paid on interest-bearing liabilities. Net interest income for the first six months of 2024 decreased $3.9 million, or 1.8%, versus the first six months of 2023. The year-over-year decrease was primarily the result of an increase in the balance and cost of interest-bearing liabilities, partially offset by a higher balance and yield on interest-earning assets due in part to a higher proportion of those assets being comprised of loan balances due to strong organic loan growth, and the sales and maturities of certain lower-yielding available-for-sale investment securities. Reflective of an increase in loans outstanding and a stable economic forecast, the provision for credit losses of $2.7 million for the second quarter and $8.9 million for June YTD increased $1.9 million and $4.6 million as compared to the second quarter and first six months of 2023, respectively. During the first six months of 2024, the Company increased its qualitative assessment of future uncertainty and built credit loss reserves that were primarily attributable to the business lending and consumer indirect portfolios. Second quarter and year-to-date noninterest revenues were $74.4 million and $144.7 million, respectively, up $8.4 million, or 12.7%, from the second quarter of 2023 and up $65.2 million, or 82.0%, from the first six months of 2023. Total operating noninterest revenues, a non-GAAP measure, for the second quarter and June YTD were $73.8 million and $144.0 million, respectively, an increase of $7.7 million, or 11.7%, and $12.4 million, or 9.4%, from the prior second quarter and YTD period, respectively. The increase over the prior year second quarter was driven by a $5.8 million, or 12.1%, increase in financial services business revenues and a $1.9 million, or 10.6%, increase in banking noninterest revenues. The increase over the prior June YTD period was driven by an $8.7 million, or 8.9%, increase in financial services business revenues and a $3.7 million, or 10.9%, increase in banking noninterest revenues. Noninterest expenses of $119.0 million and $237.1 million for the second quarter and June YTD periods, respectively, reflected an increase of $6.0 million, or 5.3%, from the second quarter of 2023 and an increase of $10.0 million, or 4.4%, from the first six months of 2023. The increase in noninterest expenses for the second quarter and June YTD periods was primarily due to increases in salaries and employee benefits, data processing and communications and other expenses. Operating noninterest expenses increased $6.7 million, or 6.2%, from the prior year second quarter, and $10.7 million, or 4.9%, from the prior June YTD. The effective income tax rates were 22.8% and 22.9% for second quarter and YTD 2024, respectively, as compared to 21.4% and 21.0% for the comparable prior year periods, primarily due to a higher full year projected pre-tax income result and a higher proportion of income from taxable sources. A condensed income statement is as follows: Table 1: Condensed Income Statements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (000’s omitted, except per share data) 2024 2023 2024 2023 Net interest income ​ $ 109,409 ​ $ 109,279 ​ $ 216,399 ​ $ 220,309 Provision for credit losses ​ ​ 2,708 ​ ​ 752 ​ ​ 8,856 ​ ​ 4,252 Loss on sales of investment securities ​ ​ (232) ​ ​ 0 ​ ​ (232) ​ ​ (52,329) Noninterest revenues excluding loss on sales of investment securities ​ ​ 74,622 ​ ​ 65,984 ​ 144,907 ​ 131,808 Noninterest expenses ​ ​ 118,999 ​ ​ 113,038 ​ ​ 237,083 ​ ​ 227,090 Income before income taxes ​ 62,092 ​ 61,473 ​ 115,135 ​ 68,446 Income taxes ​ 14,177 ​ 13,182 ​ 26,348 ​ 14,357 Net income ​ $ 47,915 ​ $ 48,291 ​ $ 88,787 ​ $ 54,089 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted weighted average common shares outstanding ​ 52,935 ​ 54,008 ​ 53,200 ​ 54,097 Diluted earnings per share ​ $ 0.91 ​ $ 0.89 ​ $ 1.67 ​ $ 1.00 ​ 46 Table of Contents Net Interest Income Net interest income is the amount by which interest, dividends and fees on interest-earning assets (loans, investments and cash equivalents) exceeds the cost of funds, which consists primarily of interest paid to the Company’s depositors and interest paid on borrowings. Net interest margin is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities as a percentage of interest-earning assets. Net interest income totaled $109.4 million for the second quarter of 2024 compared to $109.3 million for the second quarter of 2023. As shown in Table 2a, fully tax-equivalent net interest income, a non-GAAP measure, for the second quarter was $110.4 million, consistent with the same period last year. This was driven by a 53 basis point increase in the yield on average interest-earning assets and a $664.3 million increase in average interest-earning asset balances, offset by an 89 basis point increase in the rate paid on average interest-bearing liabilities and an $888.5 million increase in average interest-bearing liability balances in comparison to the second quarter of 2023. As reflected in Table 3 for the quarter, the favorable net interest income impacts of the increase in the yield on average interest-earning assets of $18.7 million and the volume increase in average interest-earning asset balances of $6.5 million were offset by the unfavorable net interest income impacts of the increase in the rate paid on average interest-bearing liabilities of $23.0 million and the volume increase in average interest-bearing liability balances of $2.3 million. Net interest income totaled $216.4 million for the first six months of 2024 compared to $220.3 million for the first six months of 2023. As reflected in Table 2b, June YTD fully tax-equivalent net interest income, a non-GAAP measure, of $218.4 million, decreased $4.1 million, or 1.8%, from the year-earlier period. The June YTD decrease resulted from a 102 basis point increase in the rate paid on average interest-bearing liabilities and an $822.1 million increase in average interest-bearing liability balances, partially offset by a $519.9 million increase in average interest-earning asset balances and a 58 basis point increase in the yield on average interest-earning assets. As reflected in Table 3 for June YTD, the unfavorable net interest income impacts of the increase in the rate paid on average interest-bearing liabilities of $52.5 million and the volume increase in average interest-bearing liability balances of $3.6 million were partially offset by the favorable impacts of the volume increase in average interest-earning asset balances of $9.9 million and the increase in the yield on average interest-earning assets of $42.1 million. Net interest margin of 3.01% for the second quarter of 2024 was 13 basis points lower as compared to the second quarter of 2023. The fully tax-equivalent net interest margin, a non-GAAP measure, of 3.04% for the second quarter of 2024 was 14 basis points lower as compared to the prior year’s second quarter. Net interest margin of 2.98% and fully tax-equivalent net interest margin, a non-GAAP measure, of 3.01% for the first six months of 2024 were both 18 basis points lower than the comparable period of 2023. The decreases were the result of the increase in the rate paid on average interest-bearing liabilities, partially offset by the increase in the yield on average interest-earnings assets and a higher proportion of those assets being comprised of loan balances due to strong organic loan growth and the sales and maturities of certain lower-yielding available-for-sale investment securities between the periods. The decline in noninterest checking deposit balances combined with an increase in time deposit balances also had an adverse impact on the net interest margin and fully tax-equivalent net interest margin, a non-GAAP measure, between both periods. The 53 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. The yield on average loans for the second quarter increased by 63 basis points compared to the second quarter of 2023. The second quarter of 2024 yield on average investments, including cash equivalents, increased six basis points compared to the prior year while the yield on average investments, excluding cash equivalents, increased four basis points for the same timeframe. The 58 basis point increase in the yield on interest-earning assets for the first six months of 2024 was the result of a 64 basis point increase in the yield on average loans and an 11 basis point increase in the yield on average investments, including cash equivalents, compared to the prior YTD period. Excluding cash equivalents, the yield on average investments increased two basis points compared to the prior YTD period. The increase in loan yields were reflective of higher interest rates on new loans, an increase in variable and adjustable-rate loan yields driven by higher market interest rates, including the prime rate, and a high level of new loan originations. As the majority of the Company’s investment portfolio, excluding cash equivalents, is comprised of fixed yield securities, the increase in investment yields were driven by the sales and maturities of certain lower-yielding available-for-sale investment securities and the purchases of certain higher-yielding government agency mortgage-backed securities between the periods. 47 Table of Contents The second quarter and YTD average book balance of investments, including cash equivalents, decreased $232.2 million and $380.1 million, 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 combined with cashflows being redeployed into loan originations. Investment purchases outpaced sales, maturities, calls and principal payments during the second quarter and YTD periods, driven by $85.9 million of YTD government agency mortgage-backed securities purchases classified as held-to-maturity. The cash equivalents component of average interest-earning assets increased $20.4 million and $111.5 million for the second quarter and YTD periods, respectively, compared to the prior year periods. Average loan balances increased $896.5 million for the quarter and $900.0 million YTD as compared to the prior year, with increases in all five major loan portfolios between both periods due to high levels of organic growth. The rate paid on average interest-bearing liabilities increased by 89 basis points compared to the prior year quarter as the average rate paid on interest-bearing deposits increased 84 basis points and the average rate paid on external borrowings increased 111 basis points from the comparable prior period. For the first six months of 2024, the rate paid on average interest-bearing liabilities increased by 102 basis points from the comparable prior year period as the rate paid on average interest-bearing deposits increased 97 basis points and the rate paid on average external borrowings increased 105 basis points. The increase in the rate paid on average interest-bearing deposits was due to interest rates on certain interest-bearing deposits being raised in response to market conditions, including the effects of a 100 basis point increase in the Federal Funds rate during 2023 as a result of the Federal Reserve Bank’s (“Federal Reserve” or “FRB”) efforts to lower elevated inflation, and a shift in deposit mix as customers responded to changes in market interest rates by moving funds into higher yielding account types. The increase in the rate paid on average borrowings was primarily the result of higher market interest rates between the periods and the Company securing $400.0 million of fixed rate FHLB term borrowings in the third and fourth quarters of 2023 and $150.0 million of additional fixed rate FHLB term borrowings in the second quarter of 2024 to help meet the Company’s funding needs including the funding of the Company’s strong loan growth. Average interest-bearing deposits increased $626.1 million compared to the prior year quarter and $581.0 million compared to the prior YTD period. The quarterly and YTD increases in average interest-bearing deposits were due to increases in time and money market deposits, partially offset by decreases in savings and interest checking deposits reflective of the aforementioned shift in deposit mix and net municipal inflows. The average borrowing balance, which primarily includes borrowings at the FHLB and securities sold under agreement to repurchase (customer repurchase agreements), increased $262.4 million and $241.1 million for the quarter and YTD periods, respectively. The increase in average borrowings from the prior year quarter and YTD periods was primarily due to the aforementioned increase in FHLB term borrowings to meet the Company’s funding needs. Tables 2a and 2b below sets forth information related to average interest-earning assets and interest-bearing liabilities and their associated yields and rates for the periods indicated. Interest income and yields are on a fully tax-equivalent (“FTE”) basis using a marginal income tax rate of 24.4% in 2024 and 24.3% in 2023. Average balances are computed by totaling the daily ending balances in a period and dividing by the number of days in that period. Loan interest income and yields include amortization of deferred loan income and costs, loan prepayment, late and other fees and the accretion of acquired loan purchase discounts and premiums. Average loan balances include acquired loan purchase discounts and premiums, nonaccrual loans and loans held for sale. 48 Table of Contents Table 2a: Quarterly Average Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ Three Months Ended ​ ​ June 30, 2024 ​ ​ June 30, 2023 ​ ​ ​ ​ Avg. ​ ​ ​ Avg. ​ ​ ​ Average ​ ​ ​ Yield/Rate ​ Average ​ ​ ​ Yield/Rate ​ (000’s omitted except yields and rates) Balance Interest Paid ​ Balance Interest Paid ​ Interest-earning assets: ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 48,872 ​ $ 620 5.10 % ​ $ 28,491 ​ $ 303 4.27 % Taxable investment securities (1) ​ 4,119,882 ​ 20,159 1.97 % ​ 4,313,875 ​ 20,507 1.91 % Nontaxable investment securities (1) ​ 466,757 ​ 3,866 3.33 % ​ 525,314 ​ 4,447 3.40 % Loans (net of unearned discount) (2) ​ 9,969,462 ​ 133,346 5.38 % ​ 9,072,956 ​ 107,447 4.75 % Total interest-earning assets ​ 14,604,973 ​ 157,991 4.35 % ​ 13,940,636 ​ 132,704 ​ 3.82 % Noninterest-earning assets ​ 1,174,001 ​ ​ ​ ​ ​ 1,209,365 ​ ​ ​ ​ Total assets ​ $ 15,778,974 ​ ​ ​ ​ ​ $ 15,150,001 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings, and money market deposits ​ $ 7,657,160 ​ 21,286 1.12 % ​ $ 7,874,095 ​ 12,449 0.63 % Time deposits ​ 2,022,136 ​ 19,103 3.80 % ​ 1,179,104 ​ 6,499 2.21 % Customer repurchase agreements ​ 275,954 ​ 1,174 1.71 % ​ 303,744 ​ 654 0.86 % Overnight borrowings ​ ​ 90,555 ​ ​ 1,266 ​ 5.62 % ​ ​ 202,565 ​ ​ 2,610 ​ 5.17 % FHLB and other borrowings ​ 419,437 ​ 4,800 4.60 % ​ 17,276 ​ 133 3.08 % Total interest-bearing liabilities ​ ​ 10,465,242 ​ 47,629 1.83 % ​ 9,576,784 ​ 22,345 0.94 % Noninterest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest checking deposits ​ 3,534,516 ​ ​ ​ ​ ​ 3,836,341 ​ ​ ​ ​ Other liabilities ​ 145,341 ​ ​ ​ ​ ​ 103,884 ​ ​ ​ ​ Shareholders’ equity ​ 1,633,875 ​ ​ ​ ​ ​ 1,632,992 ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,778,974 ​ ​ ​ ​ ​ $ 15,150,001 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings ​ ​ ​ $ 110,362 ​ ​ ​ ​ ​ $ 110,359 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest spread ​ ​ ​ ​ 2.52 % ​ ​ ​ ​ 2.88 % Net interest margin on interest-earning assets ​ ​ ​ ​ 3.01 % ​ ​ ​ ​ 3.14 % Net interest margin on interest-earning assets (FTE) (non-GAAP) ​ ​ ​ ​ ​ ​ ​ 3.04 % ​ ​ ​ ​ ​ ​ ​ 3.18 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fully tax-equivalent adjustment (3) ​ ​ ​ $ 953 ​ ​ ​ ​ ​ $ 1,080 ​ (1) Averages for investment securities are based on amortized cost basis and the yields do not give effect to changes in fair value that is reflected as a component of noninterest-earning assets, shareholders’ equity, and deferred taxes. (2) Includes nonaccrual loans. The impact of interest and fees not recognized on nonaccrual loans was immaterial. (3) The FTE adjustment represents taxes that would have been paid had nontaxable investment securities and loans been taxable. The adjustment enhances the comparability of the performance of assets that have different tax liabilities. ​ 49 Table of Contents Table 2b: Year-to-Date Average Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ Six Months Ended ​ ​ ​ June 30, 2024 ​ June 30, 2023 ​ ​ ​ ​ ​ Avg. ​ ​ Avg. ​ ​ ​ Average ​ ​ ​ ​ Yield/Rate ​ ​ Average ​ ​ ​ Yield/Rate (000’s omitted except yields and rates) ​ ​ Balance ​ ​ Interest ​ Paid ​ ​ Balance ​ ​ Interest ​ Paid Interest-earning assets: ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 139,585 ​ $ 3,704 5.34 % $ 28,135 ​ $ 542 ​ 3.89 % Taxable investment securities (1) ​ 4,095,569 ​ 38,977 1.91 % 4,535,749 ​ 42,206 ​ 1.88 % Nontaxable investment securities (1) ​ 477,569 ​ 7,931 3.34 % 528,939 ​ 8,963 ​ 3.42 % Loans (net of unearned discount) (2) ​ 9,879,085 ​ 261,052 5.31 % 8,979,081 ​ 207,966 ​ 4.67 % Total interest-earning assets ​ 14,591,808 ​ 311,664 4.30 % 14,071,904 ​ 259,677 ​ 3.72 % Noninterest-earning assets ​ 1,196,112 ​ ​ ​ ​ 1,185,929 ​ ​ ​ Total assets ​ $ 15,787,920 ​ ​ ​ ​ $ 15,257,833 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ Interest checking, savings, and money market deposits ​ $ 7,625,621 ​ 41,132 1.08 % $ 7,916,883 ​ 19,046 ​ 0.49 % Time deposits ​ 1,945,068 ​ 36,042 3.73 % 1,072,847 ​ 9,830 ​ 1.85 % Customer repurchase agreements ​ 282,980 ​ 2,427 1.73 % 319,024 ​ 1,124 ​ 0.71 % Overnight borrowings ​ 60,022 ​ 1,678 5.62 % 282,089 ​ 6,892 ​ 4.93 % FHLB and other borrowings ​ 409,474 ​ 9,376 4.60 % 17,494 ​ 267 ​ 3.07 % Federal Reserve short-term borrowings ​ 108,791 ​ 2,643 4.88 % 0 ​ 0 ​ 0.00 % Subordinated notes payable ​ 0 ​ 0 0.00 % 1,543 ​ 38 ​ 4.96 % Total interest-bearing liabilities ​ 10,431,956 ​ 93,298 1.81 % 9,609,880 ​ 37,197 ​ 0.78 % Noninterest-bearing liabilities: ​ ​ ​ ​ ​ ​ Noninterest checking deposits ​ 3,552,709 ​ ​ ​ ​ 3,939,345 ​ ​ ​ Other liabilities ​ 145,712 ​ ​ ​ ​ 103,598 ​ ​ ​ Shareholders’ equity ​ 1,657,543 ​ ​ ​ ​ 1,605,010 ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,787,920 ​ ​ ​ ​ $ 15,257,833 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings ​ ​ ​ ​ $ 218,366 ​ ​ $ 222,480 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest spread ​ ​ ​ ​ ​ ​ 2.49 % ​ ​ 2.94 % Net interest margin on interest-earning assets ​ ​ ​ ​ ​ ​ 2.98 % ​ ​ 3.16 % Net interest margin on interest-earning assets (FTE) (non-GAAP) ​ ​ ​ ​ ​ ​ 3.01 % ​ ​ 3.19 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fully tax-equivalent adjustment (3) ​ ​ ​ ​ $ 1,967 ​ ​ ​ $ 2,171 ​ ​ (1) Averages for investment securities are based on amortized cost basis and the yields do not give effect to changes in fair value that is reflected as a component of noninterest-earning assets, shareholders’ equity, and deferred taxes. (2) Includes nonaccrual loans. The impact of interest and fees not recognized on nonaccrual loans was immaterial. (3) The FTE adjustment represents taxes that would have been paid had nontaxable investment securities and loans been taxable. The adjustment enhances the comparability of the performance of assets that have different tax liabilities. ​ 50 Table of Contents 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. Table 3: Rate/Volume ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, 2024 ​ ​ Six months ended June 30, 2024 ​ ​ versus June 30, 2023 ​ ​ versus June 30, 2023 ​ ​ Increase (Decrease) Due to Change in (1) ​ Increase (Decrease) Due to Change in (1) (000’s omitted) Volume Rate Net Change Volume Rate Net Change Interest earned on: ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 250 ​ $ 67 ​ $ 317 ​ $ 2,888 ​ $ 274 ​ $ 3,162 Taxable investment securities ​ (938) ​ 590 ​ (348) ​ (4,171) ​ 942 ​ (3,229) Nontaxable investment securities ​ (487) ​ (94) ​ (581) ​ (857) ​ (175) ​ (1,032) Loans (net of unearned discount) ​ 11,211 ​ 14,688 ​ 25,899 ​ 22,066 ​ 31,020 ​ 53,086 Total interest-earning assets (2) ​ 6,547 ​ 18,740 ​ 25,287 ​ 9,881 ​ 42,106 ​ 51,987 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest paid on: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings and money market deposits ​ (352) ​ 9,189 ​ 8,837 ​ (726) ​ 22,812 ​ 22,086 Time deposits ​ 6,306 ​ 6,298 ​ 12,604 ​ 11,610 ​ 14,602 ​ 26,212 Customer repurchase agreements ​ (65) ​ 585 ​ 520 ​ (140) ​ 1,443 ​ 1,303 Overnight borrowings ​ ​ (1,550) ​ ​ 206 ​ ​ (1,344) ​ ​ (6,086) ​ ​ 872 ​ ​ (5,214) FHLB borrowings ​ 4,571 ​ 96 ​ 4,667 ​ 8,909 ​ 200 ​ 9,109 Federal Reserve short-term borrowings ​ 0 ​ 0 ​ 0 ​ 2,643 ​ 0 ​ 2,643 Subordinated notes payable ​ 0 ​ 0 ​ 0 ​ (38) ​ 0 ​ (38) Total interest-bearing liabilities (2) ​ 2,341 ​ 22,943 ​ 25,284 ​ 3,579 ​ 52,522 ​ 56,101 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings (2) ​ $ 5,136 ​ $ (5,133) ​ $ 3 ​ $ 8,040 ​ $ (12,154) ​ $ (4,114) (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of such change in each component. (2) Changes due to volume and rate are computed from the respective changes in average balances and rates of the totals; they are not a summation of the changes of the components. Noninterest Revenues The Company’s sources of noninterest revenues are of four primary types: 1) general banking services related to loans, including mortgage banking, deposits and other core customer activities typically provided through the branch network and digital banking channels (performed by CBNA); 2) employee benefit trust, collective investment fund, transfer agency, actuarial, benefit plan administration and recordkeeping services (performed by BPAS and its subsidiaries); 3) wealth management services, comprised of trust services (performed by the Nottingham Trust division within CBNA), broker-dealer and investment advisory products and services (performed by Community Investment Services Inc. (“CISI”), OneGroup Wealth Partners, Inc. and The Carta Group, Inc.) and asset management services (performed by Nottingham Advisors, Inc.); and 4) insurance and risk management products and services (performed by OneGroup). Additionally, the Company has other transactions that impact noninterest revenues, including realized and unrealized gains or losses on investment securities and gains or losses on debt extinguishment. ​ 51 Table of Contents Table 4: Noninterest Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (000’s omitted) 2024 2023 2024 2023 ​ Employee benefit services ​ $ 32,118 ​ $ 28,565 ​ $ 63,816 ​ $ 57,949 ​ Insurance services ​ 13,307 ​ 11,860 ​ 24,416 ​ 23,382 ​ Wealth management services ​ ​ 8,691 ​ ​ 7,858 ​ ​ 17,901 ​ ​ 16,103 ​ Deposit service charges and fees ​ 7,501 ​ 7,065 ​ 15,074 ​ 13,999 ​ Debit interchange and ATM fees ​ 6,670 ​ 6,620 ​ 13,348 ​ 12,582 ​ Mortgage banking ​ 2,275 ​ 11 ​ 2,620 ​ 286 ​ Other banking revenues ​ 3,193 ​ 4,055 ​ 6,849 ​ 7,315 ​ Subtotal ​ 73,755 ​ ​ 66,034 ​ ​ 144,024 ​ ​ 131,616 ​ Loss on sales of investment securities ​ ​ (232) ​ ​ 0 ​ ​ (232) ​ ​ (52,329) ​ Gain on debt extinguishment ​ 0 ​ 0 ​ 0 ​ 242 ​ Unrealized gain (loss) on equity securities ​ 867 ​ (50) ​ 883 ​ (50) ​ Total noninterest revenues ​ $ 74,390 ​ $ 65,984 ​ $ 144,675 ​ $ 79,479 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues/total revenues ​ ​ 40.5 % ​ 37.6 % ​ 40.1 % ​ 26.5 % Operating noninterest revenues/operating revenues (FTE basis) (non-GAAP) (1) ​ ​ 40.1 % ​ 37.4 % ​ 39.7 % ​ 37.2 % (1) Operating noninterest revenues, a non-GAAP measure, excludes loss on sales of investment securities, gain on debt extinguishment and unrealized gain (loss) on equity securities from total noninterest revenues. Operating revenues, a non-GAAP measure, is defined as net interest income on a fully tax-equivalent basis plus noninterest revenues, excluding loss on sales of investment securities, gain on debt extinguishment, and unrealized gain (loss) on equity securities. See Table 14 for Reconciliation of GAAP to Non-GAAP Measures. As displayed in Table 4, noninterest revenues totaled $74.4 million for the second quarter of 2024 and $144.7 million for the first six months of 2024. This represents an increase of $8.4 million, or 12.7%, for the quarter and an increase of $65.2 million, or 82.0%, for the YTD period in comparison to the equivalent 2023 periods. Noninterest revenues for the second quarter and YTD periods of 2024 included a $0.9 million unrealized gain on equity securities associated with the conversion of certain Visa Class B shares to Visa Class C shares and a $0.2 million loss on sales of investment securities associated with the sales of certain available-for-sale investment securities. Noninterest revenues for the first six months of 2023 included 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 prior year’s first quarter and a $0.2 million gain on debt extinguishment. Operating noninterest revenues, a non-GAAP measure as defined in the table above, totaled $73.8 million for the second quarter of 2024, an increase of $7.7 million, or 11.7%, from the prior year’s second quarter and totaled $144.0 million for the first six months of 2024, an increase of $12.4 million, or 9.4%, from the first six months of 2023. The increases between both periods reflected growth in employee benefit services revenues, banking noninterest revenues, insurance services revenues and wealth management services revenues. Employee benefit services revenues increased $3.5 million, or 12.4%, and $5.9 million, or 10.1%, for the three and six months ended June 30, 2024, respectively, as compared to the equivalent prior year periods driven by new business and increases in the total participants under administration, along with growth in asset-based fee revenues resulting from market appreciation and the acquisition of certain assets of Creative Plan Designs Limited, a provider of employee benefit plan design, administration and consulting, on February 1, 2024. Banking noninterest revenues increased $1.9 million, or 10.6%, between the second quarter of 2023 and 2024 and increased $3.7 million, or 10.9%, between the first six months of 2023 and 2024. The growth between both periods was driven by increases in mortgage banking revenues (up $2.3 million for the quarter and YTD), deposit service charges and fees (up $0.4 million for the quarter and $1.1 million YTD) and debit interchange and ATM fees (up $0.1 million for the quarter and $0.8 million YTD), partially offset by a decrease in other banking revenues (down $0.9 million for the quarter and $0.5 million YTD). The increases in mortgage banking revenues reflected higher sales volumes of secondary market eligible residential mortgage loans and an increase in the value of mortgage servicing rights. The Company expects growth in its other banking revenues associated with interest rate swap fee revenues due to its recent implementation of interest rate swap origination capabilities. 52 Table of Contents Insurance services revenues increased $1.4 million, or 12.2%, and $1.0 million, or 4.4%, for the second quarter and YTD periods, respectively, due to organic and acquired growth in commissions revenues, including the incremental revenues resulting from the acquisition of a New York-based insurance agency for $4.6 million in total consideration on April 1, 2024. Wealth management services revenues increased $0.8 million, or 10.6%, for the second quarter of 2024 and $1.8 million, or 11.2%, for June 2024 YTD as compared to the same time periods of 2023, as more favorable investment market conditions drove an increase in assets under management between the periods. The ratio of noninterest revenues to total revenues was 40.5% for the second quarter of 2024 and 40.1% for June YTD 2024, compared to 37.6% for the prior year’s second quarter and 26.5% for June YTD 2023. The quarterly increase was due to noninterest revenues increasing 12.7% while net interest income increased 0.1%. The YTD increase was primarily the result of the $65.2 million, or 82.0%, increase in total noninterest revenues due to the aforementioned $52.3 million realized loss on sales of investment securities recognized in the prior year’s first quarter, while net interest income decreased 1.8% driven by funding cost pressures. The ratio of operating noninterest revenues to operating revenues (FTE), a non-GAAP measure as defined in the table above, was 40.1% for the quarter and 39.7% for the six months ended June 30, 2024, respectively, versus 37.4% and 37.2% for the comparable periods of 2023. The increase between the quarterly periods was due to an 11.7% increase in operating noninterest revenues, a non-GAAP measure, due to the factors noted above, while fully tax-equivalent net interest income, a non-GAAP measure, was flat. The year-to-date increase was a function of a 9.4% increase in operating noninterest revenues, a non-GAAP measure, due to the factors noted above, while fully tax-equivalent net interest income, a non-GAAP measure, decreased 1.8%, driven by funding cost pressures. Noninterest Expenses Table 5 below sets forth the quarterly and YTD results of the major noninterest expense categories for the current and prior year, as well as efficiency ratios (defined below), a standard measure of expense utilization effectiveness commonly used in the banking industry. Table 5: Noninterest Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ Six Months Ended ​ ​ June 30, ​ ​ June 30, (000’s omitted) 2024 2023 ​ 2024 2023 ​ Salaries and employee benefits $ 73,447 $ 68,034 ​ $ 146,510 ​ $ 139,521 ​ Data processing and communications ​ 15,274 ​ 14,291 ​ ​ 29,622 ​ 27,420 ​ Occupancy and equipment ​ 10,715 ​ 10,453 ​ ​ 22,077 ​ 21,477 ​ Amortization of intangible assets ​ ​ 3,877 ​ ​ 3,705 ​ ​ ​ 7,453 ​ ​ 7,372 ​ Legal and professional fees ​ 3,459 ​ 3,102 ​ ​ 7,800 ​ 8,303 ​ Business development and marketing ​ 4,139 ​ 4,567 ​ ​ 7,184 ​ 7,468 ​ Litigation accrual ​ 0 ​ 0 ​ ​ 119 ​ 0 ​ Acquisition expenses ​ ​ 104 ​ ​ (1) ​ ​ ​ 139 ​ ​ 56 ​ Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 1,000 ​ ​ ​ 0 ​ ​ 1,000 ​ Other ​ 7,984 ​ 7,887 ​ ​ 16,179 ​ 14,473 ​ Total noninterest expenses ​ $ 118,999 ​ $ 113,038 ​ ​ $ 237,083 ​ $ 227,090 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses/average assets ​ ​ 3.03 % ​ 2.99 % ​ ​ 3.02 % ​ 3.00 % Operating noninterest expenses (1) /average assets (non-GAAP) ​ 2.93 % 2.87 % ​ 2.92 % 2.89 % Efficiency ratio (GAAP) ​ ​ 64.7 % ​ 64.5 % ​ ​ 65.7 % ​ 75.8 % Operating efficiency ratio (non-GAAP) (2) ​ 62.5 % 61.4 % ​ 63.3 % 61.8 % (1) Operating noninterest expenses, a non-GAAP measure, is calculated as total noninterest expenses less acquisition expenses, acquisition-related contingent consideration adjustments, litigation accrual and amortization of intangibles. See Table 14 for Reconciliation of GAAP to Non-GAAP Measures. (2) Operating efficiency ratio, a non-GAAP measure, is calculated as operating expenses as defined in footnote (1) above divided by net interest income on a fully tax-equivalent basis plus noninterest revenues excluding loss on sales of investment securities, gain on debt extinguishment and unrealized gain (loss) on equity securities. See Table 14 for Reconciliation of GAAP to Non-GAAP Measures. 53 Table of Contents As shown in Table 5, the Company recorded noninterest expenses of $119.0 million and $237.1 million for the second quarter and YTD periods of 2024, respectively, representing an increase of $6.0 million, or 5.3%, and an increase of $10.0 million, or 4.4%, from the prior year periods, respectively. The increases were primarily driven by salaries and employee benefits that increased $5.4 million, or 8.0%, and $7.0 million, or 5.0%, for the second quarter and YTD periods of 2024, respectively, as compared to the corresponding periods of 2023. The remaining change to noninterest expenses is attributable to data processing and communications (up $1.0 million for the quarter and $2.2 million YTD), amortization of intangible assets (up $0.2 million for the quarter and $0.1 million YTD), occupancy and equipment (up $0.3 million for the quarter and $0.6 million YTD), legal and professional fees (up $0.3 million for the quarter and down $0.5 million YTD), business development and marketing (down $0.4 million for the quarter and $0.3 million YTD), acquisition-related contingent consideration adjustments (down $1.0 million for the quarter and YTD), acquisition expenses (up $0.1 million for the quarter and YTD), litigation accrual (up $0.1 million YTD) and other expenses (up $0.1 million for the quarter and $1.7 million YTD). The increases in salaries and benefits expense were driven by merit and market-related increases in employee wages and acquisitions between the periods, partially offset by the impact of the previously announced retail customer service workforce optimization plan and a decrease in employee retirement-related severance expense. The increases in data processing and communications expenses are reflective of the Company’s continued investment in customer-facing and back-office technologies including investments in additional technology to enhance its cybersecurity infrastructure, including the detection and prevention of customer payment-related fraud. The increase in other expenses on a YTD basis was primarily due to increases in insurance expenses and non-service related components lowering the net periodic pension benefit credit. The increase in insurance expenses included $0.3 million associated with an additional expected increase to the Federal Deposit Insurance Corporation (“FDIC”) special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of certain banks in the first quarter of 2023, along with the impact of a higher FDIC insurance assessment rate. The Company’s GAAP efficiency ratio was 64.7% for the second quarter of 2024, 0.2 percentage points unfavorable to the comparable quarter of 2023. This resulted from total revenues increasing 4.9%, primarily due to higher noninterest revenues, while total noninterest expenses increased 5.3% due to the factors noted above. The GAAP efficiency ratio of 65.7% for June YTD 2024 was 10.1 percentage points favorable to the 75.8% GAAP efficiency ratio for June YTD 2023. The improvement in the GAAP efficiency ratio between the comparable YTD periods was the result of total revenues increasing 20.4% 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 4.4% due to the factors noted above. Annualized current quarter noninterest expenses as a percentage of average assets increased 0.04 percentage points versus the second quarter of the prior year as noninterest expenses increased 5.3% while average assets increased 4.2%. On a YTD basis, annualized noninterest expenses as a percentage of average assets increased 0.02 percentage points as noninterest expenses increased 4.4% while average assets increased 3.5%. Noninterest expenses increased between both periods due to the factors noted above and average assets increased between both periods primarily due to the aforementioned organic loan growth. The Company’s operating efficiency ratio, a non-GAAP measure as defined in the table above, was 62.5% for the second quarter, 1.1 percentage points unfavorable to the comparable quarter of 2023. This resulted from operating noninterest expenses, a non-GAAP measure as described above, increasing 6.2%, while operating revenues (FTE), a non-GAAP measure as described above, increased 4.4%. The Company’s operating efficiency ratio, a non-GAAP measure as defined in the table above, of 63.3% for the first six months of 2024 was 1.5 percentage points unfavorable compared to the first six months of 2023 due to 4.9% higher operating noninterest expenses, a non-GAAP measure as described above, while operating revenues (FTE), a non-GAAP measure as described above, increased by 2.3%. Annualized current year operating noninterest expenses, a non-GAAP measure as described above, as a percentage of average assets increased 0.06 percentage points versus the prior year quarter and increased 0.03 percentage points versus the prior year-to-date period as operating noninterest expenses, a non-GAAP measure as described above, increased at a higher rate than average assets on both a quarterly and YTD basis. Operating noninterest expenses, a non-GAAP measure as described above, increased 6.2% for the quarter and 4.9% for the year-to-date period, while average assets increased 4.2% for the quarter and 3.5% for the year-to-date period. 54 Table of Contents Income Taxes The second quarter and YTD 2024 effective income tax rates were 22.8% and 22.9%, respectively, as compared to 21.4% and 21.0% for the comparable periods of 2023. The increase in the second quarter and YTD 2024 effective income tax rates are primarily attributable to an increase in the full-year 2024 pre-tax income projection as compared to the prior year, as the prior YTD included a $52.3 million realized loss on sales of investment securities. The Company recorded a $0.2 million income tax expense and a $0.3 million income tax benefit associated with stock-based compensation for YTD 2024 and YTD 2023, respectively. The effective tax rates adjusted to exclude stock-based compensation tax benefits and federal tax credit amortization for the second quarter and YTD 2024 were 22.3% and 22.1%, respectively, as compared to 21.4% for both of the comparable periods of 2023. Investment Securities The carrying value of investment securities (including unrealized gains and losses) was $4.17 billion at the end of the second quarter, an increase of $1.3 million from December 31, 2023 and a decrease of $65.3 million, or 1.5%, from June 30, 2023. The book value of investment securities (excluding unrealized gains and losses) of $4.60 billion at the end of the second quarter increased $51.4 million from December 31, 2023 and decreased $69.4 million from June 30, 2023. During the first six months of 2024, the Company purchased $85.9 million of government agency mortgage-backed securities with an average yield of 5.65%, which the Company classified as held-to-maturity. The Company also participated in a Visa Class B share exchange during the second quarter of 2024, in which half of its Visa Class B shares were converted into Visa Class C shares that are convertible (with certain timing restrictions) to NYSE-traded Visa Class A shares, resulting in a $0.9 million unrealized gain on equity securities. These additions were offset by proceeds of $31.0 million from sales of tax-exempt obligations of state and political subdivisions available-for-sale investment securities and $34.6 million of investment maturities, calls and principal payments during the first six months of 2024. A realized loss of $0.2 million was recognized on the sales of tax-exempt obligations of state and political subdivisions available-for-sale investment securities during the second quarter of 2024. Additionally, there was $18.9 million of net accretion on investment securities during the first six months of 2024. The effective duration of the investment securities portfolio was 6.6 years at the end of the second quarter of 2024, as compared to 7.0 years at the end of 2023 and 7.2 years at the end of the second quarter of 2023. The change in the carrying value of investment securities is also impacted by the amount of net unrealized gains or losses. At June 30, 2024, the investment portfolio (excluding held-to-maturity investment securities) had a $430.9 million net unrealized loss, as compared to a $380.7 million net unrealized loss at December 31, 2023 and a $435.0 million net unrealized loss at June 30, 2023. 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 sales and maturities that have occurred over the past 12 months. 55 Table of Contents The following table sets forth the carrying value of the Company’s investment securities portfolio: Table 6: Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, June 30, (000’s omitted) ​ 2024 ​ 2023 ​ 2023 Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 2,056,048 ​ $ 2,080,783 ​ $ 2,189,845 Obligations of state and political subdivisions ​ 417,443 ​ 474,363 ​ ​ 491,963 Government agency mortgage-backed securities ​ 320,295 ​ 348,526 ​ ​ 365,506 Corporate debt securities ​ 7,497 ​ 7,394 ​ ​ 7,097 Government agency collateralized mortgage obligations ​ 7,670 ​ 8,926 ​ ​ 10,459 Total available-for-sale portfolio ​ ​ 2,808,953 ​ 2,919,992 ​ ​ 3,064,870 ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ ​ 1,123,825 ​ ​ 1,109,101 ​ ​ 1,094,267 Government agency mortgage-backed securities ​ ​ 147,284 ​ ​ 63,073 ​ ​ 9,753 Total held-to-maturity portfolio ​ ​ 1,271,109 ​ ​ 1,172,174 ​ ​ 1,104,020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity and Other Securities: ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value ​ 2,005 ​ 372 ​ ​ 369 Federal Home Loan Bank common stock ​ 44,838 ​ 32,526 ​ ​ 23,663 Federal Reserve Bank common stock ​ 33,568 ​ 33,568 ​ ​ 33,568 Other equity securities, at adjusted cost ​ ​ 6,089 ​ ​ 6,680 ​ ​ 5,409 Total equity and other securities ​ 86,500 ​ 73,146 ​ ​ 63,009 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total investments ​ $ 4,166,562 ​ $ 4,165,312 ​ $ 4,231,899 ​ Loans Loans ended the second quarter at $10.02 billion, $319.3 million, or 3.3%, higher than December 31, 2023 ending loans and $853.1 million, or 9.3%, higher than June 30, 2023. Mortgages on commercial property combined with general-purpose business lending to commercial, industrial, non-profit and municipal customers and vehicle dealer floor plan financing is characterized as the Company’s business lending activity. The business lending portfolio increased $460.5 million, or 12.0%, from June 30, 2023, and $209.8 million, or 5.1%, from December 31, 2023, driven by net organic growth over both periods. Business non-real estate loans, including commercial and industrial lending, increased $92.7 million, or 9.3%, owner-occupied commercial real estate increased $63.9 million, or 8.5%, multifamily increased $43.9 million, or 7.1%, and non-owner occupied commercial real estate increased $9.3 million, or 0.5%, as compared to December 31, 2023. While certain macroeconomic concerns are persisting related to non-owner occupied and multifamily commercial real estate, the Company’s exposure to these portfolios is diverse both geographically and by industry type, and remains relatively low at 15% of total assets, 24% of total loans and 198% of total bank-level regulatory capital. Commercial real estate lending represents 74.5% of the total business lending portfolio at June 30, 2024 while other business lending including commercial and industrial loans represents the remaining 25.5% of total business lending. The Company’s largest non-owner occupied commercial real estate lending concentration by property type is multifamily at 20.7% of total commercial real estate lending, followed by office at 11.5% and commercial construction, at 10.7%. The Company’s largest owner-occupied commercial real estate lending concentration by industry is retail trade at 8.3% of total commercial real estate lending, followed by health care and social assistance at 2.8% and real estate rental and leasing at 2.7%. These levels demonstrate the Company’s diversity in the business lending portfolio, as there are no significant industry or geographic concentrations, no metropolitan statistical area (“MSA”) accounting for more than 13% of the CRE portfolio and a very low level of commercial real estate lending being conducted in major metropolitan areas. See Table 7 below for concentrations of CRE lending by borrower type and Table 8 below for concentrations of CRE by property location. 56 Table of Contents 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, as well as the Company’s solid liquidity profile relative to competitors that creates opportunities to gain market share. The Company strives to generate growth in its business portfolio in a manner that adheres to its goals of maintaining strong asset quality and producing profitable margins. The Company expects the composition of its growth in its business lending portfolio over the remaining two quarters of 2024 to be a proportionally higher for business non-real estate lending than commercial real estate lending compared to what was experienced by the Company over the past several years, in order to maintain the overall concentration of its CRE portfolio. The Company continues to invest in additional personnel, technology and business development resources to further strengthen its capabilities in this important product category. To assist our business lending customers in managing their interest rate risk, the Company enters into interest rate swaps which have associated interest rate and credit risk; for additional detail on the Company’s use of interest rate swaps, see Note L beginning on page 34 of this Form 10-Q. The following table presents the concentration by borrower type of the Company’s CRE loan balances as of June 30, 2024: Table 7: Concentrations of CRE Lending by Borrower Type ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted, except percentages) Amortized Cost Percentage of Total Multifamily and non-owner occupied CRE by property type: ​ ​ ​ ​ ​ ​ Multifamily ​ $ 663,681 20.7 % Office ​ 368,989 11.5 % Commercial Construction ​ 340,994 10.7 % Lodging ​ 337,801 10.6 % Retail ​ 256,378 8.0 % Other Lessors of CRE ​ 211,619 6.6 % Warehouse/Industrial ​ 131,551 4.1 % Nursing/Assisted Living ​ 57,432 1.8 % Residential Construction ​ 4,160 0.1 % All Other ​ 11,615 0.4 % Total multifamily and non-owner occupied CRE ​ 2,384,220 74.5 % ​ ​ ​ ​ ​ ​ ​ Owner-occupied CRE by industry: ​ ​ ​ Retail Trade ​ 265,181 8.3 % Health Care and Social Assistance ​ 88,622 2.8 % Real Estate Rental and Leasing ​ 87,319 2.7 % Other Services ​ 81,332 2.5 % Arts, Entertainment and Recreation ​ 56,272 1.8 % Agriculture and Forestry ​ 51,467 1.6 % Manufacturing ​ 50,995 1.6 % Accommodation and Food Services ​ 39,938 1.2 % Wholesale Trade ​ 25,061 0.8 % Construction ​ 15,679 0.5 % Transportation and Warehousing ​ 12,037 0.4 % Professional, Scientific and Technical Services ​ 8,707 0.3 % Educational Services ​ 4,616 0.1 % All Other ​ 29,404 0.9 % Total owner occupied CRE ​ 816,630 25.5 % ​ ​ ​ ​ ​ ​ ​ Total CRE ​ $ 3,200,850 100.0 % ​ 57 Table of Contents The following table presents the geographic concentrations of the Company’s CRE loan balances by property location (MSA) as of June 30, 2024: Table 8: Concentrations of CRE by Property Location ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Multifamily CRE ​ Owner occupied CRE ​ Non-owner occupied CRE ​ Total CRE ​ ​ ​ Percentage ​ ​ Percentage ​ Percentage ​ ​ ​ Percentage ​ ​ Amortized ​ of Total ​ Amortized ​ of Total ​ Amortized ​ of Total ​ Amortized ​ of Total (000’s omitted, except percentages) ​ Cost ​ CRE ​ Cost ​ CRE ​ Cost ​ CRE ​ Cost ​ CRE MSA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Albany-Schenectady-Troy, NY ​ $ 81,272 2.5 % $ 102,824 3.2 % $ 227,628 7.1 % $ 411,724 12.8 % Burlington-South Burlington, VT ​ 166,457 5.2 % 42,610 1.3 % 151,075 4.7 % 360,142 11.2 % Buffalo-Cheektowaga, NY ​ 36,526 1.1 % 55,639 1.7 % 162,715 5.1 % 254,880 7.9 % Rochester, NY ​ 24,668 0.8 % 73,555 2.3 % 154,681 4.8 % 252,904 7.9 % Syracuse, NY ​ 12,071 0.4 % 71,472 2.2 % 146,597 4.6 % 230,140 7.2 % Scranton Wilkes-Barre, PA ​ 60,976 1.9 % 59,227 1.9 % 103,432 3.2 % 223,635 7.0 % Utica-Rome, NY ​ 40,208 1.3 % 37,193 1.2 % 58,224 1.8 % 135,625 4.3 % Ithaca, NY ​ 31,423 1.0 % 13,573 0.4 % 17,265 0.5 % 62,261 1.9 % All Other MSA - NY (1)(2) ​ 87,919 2.7 % 45,126 1.4 % 107,647 3.4 % 240,692 7.5 % All Other MSA - PA (1)(2) ​ 17,932 0.6 % 50,413 1.6 % 86,766 2.7 % 155,111 4.9 % All Other MSA (1) ​ 23,967 0.7 % 43,542 1.4 % 252,243 7.9 % 319,752 10.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-MSAs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NY ​ 53,770 1.7 % 168,008 5.2 % 198,784 6.2 % 420,562 13.1 % All Other Non-MSA ​ 26,492 0.8 % 53,448 1.7 % 53,482 1.8 % 133,422 4.3 % Total ​ $ 663,681 20.7 % $ 816,630 25.5 % $ 1,720,539 53.8 % $ 3,200,850 100.0 % (1) The MSAs within these captions are individually less than 2% of total CRE exposure. (2) The MSAs within these captions include certain counties in adjacent states with a high degree of economic and social integration to the respective core city in New York or Pennsylvania. Consumer mortgages increased $296.1 million, or 9.6%, from one year ago and increased $83.1 million, or 2.5%, from December 31, 2023, with the increases over both periods representing net organic growth and included the impact of certain secondary market sales of organic production. The Company sold $11.6 million and $12.8 million of consumer mortgage production during the three and six months ended 2024, respectively. 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, while also benefitting from the comparatively stable housing market conditions in the Company’s primary markets relative to the national environment. Reflective of the higher interest rate environment and consumer expectations of future interest rate movements, the consumer mortgage growth produced over the last quarter is comprised of a higher proportion of adjustable rate loans than experienced in recent periods. During the first six months of 2024, approximately 30% of the net consumer mortgage growth is comprised of adjustable rate loans compared to approximately 13% over the last twelve months. The Company expects this trend to continue during the remainder of 2024. Home equity loans increased $12.8 million, or 2.9%, from one year ago and increased $5.5 million, or 1.2%, from December 31, 2023, in part a result of lower levels of payoffs and paydowns related to consumer mortgage refinancing in the higher interest rate environment. 58 Table of Contents Consumer installment loans, both those originated directly in the branches and online (referred to as “consumer direct”) and indirectly in automobile, marine and recreational vehicle dealerships (referred to as “consumer indirect”), increased $83.7 million, or 4.6%, from one year ago, and increased $20.8 million, or 1.1%, from December 31, 2023. The increases were primarily due to the Company offering competitive pricing, benefitting from reduced participation by certain competitors and capturing an increased share of the sales volumes that existed in its market area and dealer network, which resulted in growth in the Company’s consumer installment portfolio. Although the consumer indirect loan market is highly competitive, the Company is focused on maintaining a profitable in-market and contiguous market indirect portfolio, while continuing to pursue the expansion of its dealer network. Consumer direct loans have historically provided attractive returns, and the Company is committed to providing competitive market offerings to its customers in this important loan category. Despite the strong competition the Company faces from the financing subsidiaries of vehicle manufacturers and other financial intermediaries, the Company will continue to strive to grow these key portfolios through varying market conditions over the long term. Asset Quality The following table sets forth the allocation of the allowance for credit losses by loan category as of the end of the periods indicated, as well as the proportional share of each category’s loan balance to total loans. This allocation is based on management’s assessment, as of a given point in time, of the risk characteristics of each of the component parts of the total loan portfolio and is subject to change when the risk factors of each component part change. The allocation is not indicative of the specific amount of future net charge-offs that is expected to be incurred in each of the loan categories, nor should it be taken as an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category. As shown in Table 9, total allowance for credit losses at the end of the first quarter was $71.4 million, an increase of $8.2 million, or 12.9%, from one year earlier and up $4.8 million, or 7.2%, from the end of 2023. Table 9: Allowance for Credit Losses by Loan Type ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2024 December 31, 2023 June 30, 2023 ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ ​ ​ Allowance ​ Total ​ Allowance ​ Total ​ Allowance ​ Total ​ ​ ​ for Credit ​ Loan ​ for Credit ​ Loan ​ for Credit ​ Loan ​ (000’s omitted except for ratios) ​ Losses Balances Losses Balances Losses Balances ​ Business lending ​ $ 31,128 ​ 42.8 % $ 26,854 ​ 42.1 % $ 25,291 ​ 41.8 % Consumer mortgage ​ 14,303 33.6 % 15,333 33.9 % 14,553 33.5 % Consumer indirect ​ 20,124 17.2 % 18,585 17.5 % 17,808 17.9 % Consumer direct ​ 3,368 1.9 % 3,269 1.9 % 3,032 2.0 % Home equity ​ 1,519 4.5 % 1,628 4.6 % 1,600 4.8 % Unallocated ​ ​ 1,000 ​ 0.0 % ​ 1,000 ​ 0.0 % ​ 1,000 ​ 0.0 % Total ​ $ 71,442 100.0 % $ 66,669 100.0 % $ 63,284 100.0 % ​ As demonstrated in Table 9, the consumer direct and indirect installment loan portfolios carry higher credit risk than the business lending, consumer mortgage and home equity portfolios and therefore the Company allocates a higher proportional allowance to these portfolios. The unallocated allowance is maintained for potential inherent losses in the specific portfolios that are not captured due to model imprecision. The unallocated allowance of $1.0 million at June 30, 2024 was consistent with December 31, 2023 and June 30, 2023. The changes in allowance allocations reflect management’s continued refinement of its loss estimation techniques. Management considers the allocated and unallocated portions of the allowance for credit losses to be prudent and reasonable. 59 Table of Contents Allowance for credit losses and loan net charge-off ratios are as follows: Table 10: Loan Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ June 30, ​ ​ 2024 2023 2023 Allowance for credit losses/total loans ​ 0.71 % 0.69 % 0.69 % Allowance for credit losses/nonperforming loans ​ 141 % 122 % 190 % Nonaccrual loans/total loans ​ 0.47 % 0.50 % 0.33 % Allowance for credit losses/nonaccrual loans ​ 151 % 137 % 211 % Net charge-offs (annualized) to average loans outstanding (quarterly): ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ ​ 0.02 % 0.01 % 0.02 % Consumer mortgage ​ ​ 0.00 % ​ 0.04 % ​ 0.02 % Consumer indirect ​ ​ 0.16 % ​ 0.35 % ​ 0.05 % Consumer direct ​ ​ 0.80 % ​ 0.96 % ​ 0.17 % Home equity ​ ​ 0.03 % ​ 0.02 % ​ 0.07 % Total loans ​ ​ 0.05 % ​ 0.10 % ​ 0.03 % ​ Net charge-offs during the second quarter of 2024 were $1.3 million, an increase of $0.6 million compared to the second quarter of 2023. Compared with the second quarter of 2023, the consumer installment portfolios experienced higher net charge-off levels while the business lending, consumer mortgage and home equity portfolios were below prior year levels. 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 0.05%, five basis points lower than the ratio for the fourth quarter of 2023 and two basis points higher than the ratio for the second quarter of 2023. Net charge-off ratios for the second quarter of 2024 for the business lending, 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 consumer mortgage and consumer indirect portfolios were below the Company’s average for the trailing eight quarters. Economic conditions continue to be relatively stable, supporting the moderate levels of net charge-offs experienced by the Company as compared to its historical trends. Other real estate owned (“OREO”) at June 30, 2024 was $1.7 million. This compares to $1.2 million at December 31, 2023 and $0.6 million at June 30, 2023. At June 30, 2024, OREO consisted of 24 residential properties with a total value of $1.4 million and one commercial property with a value of $0.3 million. This compares to 21 residential properties with a total value of $1.1 million and one commercial property with a value of $0.1 million at December 31, 2023, and 11 residential properties with a total value of $0.6 million at June 30, 2023. The increase in OREO over the last twelve months was primarily driven by the Company working through a backlog of residential foreclosures that arose due to pandemic-related moratoriums that have since been lifted. Approximately 34% of the nonperforming loans at June 30, 2024 were related to the business lending portfolio, which is comprised of business loans broadly diversified by industry and property type. Of the nonperforming loans in the business lending portfolio, non-owner occupied commercial real estate represents 75% of the balances, owner-occupied commercial real estate represents 20% of the balances, and other commercial and industrial loans represents 5% of the balances. There is an immaterial amount of nonperforming multifamily loans. The level of nonperforming business loans increased from the prior year primarily due to changes in the financial conditions and loan repayment performance of four business lending relationships that were individually assessed for a specific allocation of the allowance for credit losses. Approximately 59% of nonperforming loans at June 30, 2024 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. Although high levels of inflation has had some adverse impact on consumers, the unemployment rate remains low and this has contributed to the credit performance in the consumer mortgage loan portfolio remaining favorable. The remaining 7% of nonperforming loans relate to consumer installment and home equity loans, with home equity nonperforming loan levels being driven by the same factors that were identified for consumer mortgages. The allowance for credit losses to nonperforming loans ratio, a general measure of coverage adequacy, was 141% at the end of the second quarter, as compared to 122% at year-end 2023 and 190% at June 30, 2023. The decrease in this ratio versus one year ago was due to nonperforming loans increasing proportionally more than the allowance for credit losses, primarily driven by the aforementioned increase in nonperforming business lending loans. ​ 60 Table of Contents The Company’s senior management, special asset officers and business lending management review all delinquent and nonaccrual loans and OREO regularly in order to identify deteriorating situations, monitor known problem credits and discuss any needed changes to collection efforts, if warranted. Based on this analysis, a relationship may be assigned a special assets officer or other senior lending officer to review the loan, meet with the borrowers, assess the collateral and recommend an action plan. This plan could include foreclosure, restructuring loans, issuing demand letters or other actions. The Company’s larger criticized credits are also reviewed on a quarterly basis by senior management, senior credit administration management, special assets officers and business lending management to monitor their status and discuss relationship management plans. Business lending management reviews the criticized business loan portfolio on a monthly basis. Delinquent loans (defined as loans 30 days or more past due or in nonaccrual status) as a percent of total loans was 0.95% at the end of the second quarter, 11 basis points below the 1.06% at year-end 2023 and 12 basis points above the 0.83% at June 30, 2023. The business lending delinquency ratio at the end of the second quarter of 0.42% was 19 basis points below the level of 0.61% at December 31, 2023 and one basis point above the level of 0.41% at June 30, 2023. The delinquency rates for all loan portfolios except for consumer direct decreased as compared to the levels at December 31, 2023. The delinquency rates for all loan portfolios increased as compared to the levels at June 30, 2023. The Company recorded a $2.7 million provision for credit losses in the second quarter of 2024. The second quarter provision for credit losses was $1.9 million higher than the equivalent prior year period’s provision for credit losses of $0.8 million. The allowance for credit losses of $71.4 million as of June 30, 2024 increased $8.1 million from the level one year ago. While economic forecasts remained stable, the current quarter provision for credit losses is reflective of an increase in loan balances and the Company increasing its qualitative assessment of future uncertainty and building credit loss reserves, with a primary focus on the business lending and consumer indirect portfolios. The allowance for credit losses to total loans ratio was 0.71% at June 30, 2024, two basis points higher than the levels at December 31, 2023 and June 30, 2023. 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. As of June 30, 2024, the net purchase discount related to the $972.3 million of remaining non-purchased credit deteriorated (“PCD”) loan balances acquired through prior period acquisition transactions was approximately $19.1 million, or 2.0% of that portfolio. Deposits As shown in Table 11, average deposits of $13.21 billion in the second quarter were $324.3 million, or 2.5%, higher than the second quarter of 2023 and increased $240.1 million, or 1.9%, from the fourth quarter of last year. On an ending basis, total deposits increased $209.8 million, or 1.6%, from December 31, 2023 and were $266.1 million, or 2.1%, higher than one year prior, primarily driven by higher public fund deposit balances. The mix of average deposit balances changed as the weighting of non-maturity deposits (noninterest checking, interest checking, savings and money markets) to total deposits has decreased from the prior year levels. Average noninterest checking deposits as a percentage of average total deposits was 26.7% in the second quarter compared to 29.8% in the second quarter of 2023 and 28.6% in the fourth quarter of last year. Average non-maturity deposits represented 84.7% of the Company’s average deposit funding base in the second quarter of 2024, while time deposits represented 15.3% of total average deposits. In comparison, time deposits represented 9.1% of total average deposits during the second quarter of 2023 and 12.3% of total average deposits during the fourth quarter of last year, due in part to customers responding to changes in market interest rates by moving funds into higher yielding time deposit accounts. The quarterly average cost of deposits was 1.23% for the second quarter of 2024, compared to 0.59% in the second quarter of 2023, 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. 61 Table of Contents The Company’s deposit base is well diversified across customer segments, which as of June 30, 2024 is comprised of approximately 61% consumer, 26% business and 13% municipal, and broadly dispersed with an average consumer deposit balance per account of approximately $12,000 and average business deposit relationship of approximately $68,000, while the Company’s total average deposit balance per account is under $20,000. In addition, at the end of the quarter, 66% of the Company’s total deposit balances were in checking and low-rate savings accounts and the weighted-average age of the Company’s non-maturity deposit accounts was approximately 15 years. The total estimated amount of deposits that exceeded the $250,000 insured limit provided by the FDIC, net of collateralized and intercompany deposits, was approximately $2.14 billion at June 30, 2024. 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 whose uninsured balances are collateralized by certain pledged investment securities. The Bank Call Report estimated uninsured deposit balances at June 30, 2024 are reported gross at $4.06 billion, which includes intercompany account balances of $358.4 million, and collateralized deposits of $1.56 billion. Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of ending total deposits at June 30, 2024. These estimates are based on the determination of known deposit account balances of each depositor and the insurance guidelines provided by the FDIC. Average nonpublic fund deposits for the second quarter of 2024 increased $2.1 million versus the fourth quarter of 2023 and decreased $62.6 million, or 0.5%, versus the year-earlier period, due in part to increased rate competition from other banks and non-depository institutions. Average public fund deposits for the second quarter increased $238.0 million, or 14.5%, from the fourth quarter of 2023 and $386.9 million, or 25.9%, from the second quarter of 2023, reflective of competitive offerings and expansion of its municipal deposit relationship base due in part to the Company’s business development efforts. Average public fund deposits as a percentage of total average deposits increased from 11.6% in the second quarter of 2023 to 14.2% in the second quarter of 2024. Table 11: Quarterly Average Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ June 30, (000’s omitted) 2024 2023 2023 Noninterest checking deposits ​ $ 3,534,516 ​ $ 3,706,781 $ 3,836,341 Interest checking deposits ​ ​ 2,851,181 ​ 2,931,200 ​ 3,117,984 Savings deposits ​ ​ 2,226,220 ​ 2,297,117 ​ 2,386,908 Money market deposits ​ ​ 2,579,759 ​ 2,445,595 ​ 2,369,203 Time deposits ​ ​ 2,022,136 ​ ​ 1,592,996 ​ 1,179,104 Total deposits ​ $ 13,213,812 ​ $ 12,973,689 $ 12,889,540 Nonpublic fund deposits ​ $ 11,331,272 ​ $ 11,329,198 $ 11,393,890 Municipal deposits ​ ​ 1,882,540 ​ ​ 1,644,491 ​ 1,495,650 Total deposits ​ $ 13,213,812 ​ $ 12,973,689 $ 12,889,540 ​ Borrowings Borrowings, excluding securities sold under agreement to repurchase, at the end of the second quarter of 2024 totaled $716.7 million. This was $256.1 million higher than borrowings at December 31, 2023 and $465.4 million above the level at the end of the second quarter of 2023. The increase from the prior year second quarter was due to an increase in other FHLB borrowings of $516.4 million and the commencement of $5.4 million of finance lease liabilities, partially offset by a decrease in overnight borrowings of $56.4 million, as the Company secured fixed rate FHLB term borrowings in the third and fourth quarters of 2023 and second quarter of 2024 to support the funding of continued loan growth. The increase from the fourth quarter of 2023 was primarily related to additional FHLB term borrowings being secured in the second quarter, an increase in overnight borrowings of $124.6 million, and $5.4 million of finance lease liabilities commencing in the second quarter of 2024 in connection with the Company’s de novo branch expansions. During January 2024, the Company secured $300.0 million in short-term borrowings through the Federal Reserve’s Bank Term Funding Program at a rate of 4.87% to fund expected net loan growth. These short-term borrowings matured during March 2024 and the Bank Term Funding Program has ceased making new loans as of March 11, 2024. During June 2024, three $50.0 million putable advances were executed with the FHLB for a total of $150.0 million in new term borrowings. The advances are putable at the option of the FHLB in June 2025 and mature in June 2027 if the option is not exercised, at interest rates ranging from 4.38% to 4.47%. 62 Table of Contents Securities sold under agreement to repurchase, also referred to as customer repurchase agreements, represent collateralized municipal and commercial funding from customers that price and operate similar to a deposit instrument. Customer repurchase agreements were $215.5 million at the end of the second quarter of 2024, $89.1 million lower than December 31, 2023, due primarily to the seasonal characteristics of this portfolio, and $18.0 million lower than June 30, 2023. Shareholders’ Equity and Regulatory Capital Total shareholders’ equity of $1.67 billion at the end of the second quarter of 2024 represents a decrease of $27.8 million from the balance at December 31, 2023. The decrease was driven by common stock repurchased of $45.8 million, an increase in accumulated other comprehensive loss of $28.9 million, and common stock dividends declared of $47.5 million, partially offset by net income of $88.8 million, stock-based compensation of $4.4 million and net activity under the Company’s employee stock plans of $1.2 million. The increase in accumulated other comprehensive loss was comprised of $29.6 million of other comprehensive loss related to the Company’s investment securities portfolio, including a net decrease in the after-tax market value adjustment on the available-for-sale investment portfolio as medium and long-term market interest rates increased between the periods, partially offset by $0.7 million of other comprehensive income associated with adjustments to the overfunded status of the Company’s employee retirement plans. Over the past 12 months, total shareholders’ equity increased $52.8 million, as net income, the issuance of common stock in association with the employee stock plans, adjustments to the overfunded status of the Company’s employee retirement plans and a decrease in accumulated other comprehensive loss related to the Company’s investment securities portfolio more than offset common stock dividends declared and common stock repurchase activity. The dividend payout ratio (dividends declared divided by net income) for the first six months of 2024 was 53.5%, compared to 87.7% for the first six months of 2023. Excluding the after-tax impact of the loss on sales of investment securities, the dividend payout ratio for the first six months of 2023 was 49.8%. Second quarter dividends declared increased 0.4% versus one year earlier, as the Company’s quarterly dividend per share was raised from $0.44 to $0.45 in the third quarter of 2023, while total shares outstanding decreased 1.9% as common stock repurchases outweighed issuances from the Company’s employee stock plans. During the third quarter of 2024, the Company announced a one cent, or 2.2%, increase in the quarterly dividend to $0.46 per share on its common stock, which marked the 32 nd 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. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s dividend paying ability and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), the Company and the Bank must meet specific capital ratio guidelines that involve quantitative measures of the Company’s and the Bank’s assets and certain liabilities and off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about the treatment of capital components, the risk weightings of assets and other factors. The Company and the Bank are required to maintain a capital conservation buffer (“CCB”), composed entirely of common equity Tier 1 capital, in addition to capital sufficient to meet minimum risk-based capital ratios. The required capital conservation buffer is 2.5% as of June 30, 2024 and December 31, 2023. Therefore, to satisfy both the PCA adequately capitalized minimum risk-based capital ratios and the CCB as of June 30, 2024 and December 31, 2023, the Company and the Bank must maintain: (i) Common equity Tier 1 capital to total risk-weighted assets (“Common equity tier 1 capital ratio”) of at least 7.0%, (ii) Tier 1 capital to total risk-weighted assets (“Tier 1 risk-based capital ratio”) of at least 8.5%, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets (“Total risk-based capital ratio”) of at least 10.5%. In addition, the Company and Bank must maintain a ratio of ending Tier 1 capital to adjusted quarterly average assets (“Tier 1 leverage ratio”) of at least 5.0% to be considered “well capitalized” under the regulatory framework for prompt corrective action (not subject to CCB requirements). As of June 30, 2024 and December 31, 2023, the Company and Bank meet all applicable capital adequacy requirements to be considered “well capitalized”. As of June 30, 2024 and December 31, 2023, the regulatory capital ratios for the Company and Bank are presented below. 63 Table of Contents Table 12: Regulatory Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2024 December 31, 2023 June 30, 2023 ​ ​ Community ​ ​ ​ Community ​ ​ Community ​ ​ ​ ​ Financial ​ Community ​ Financial ​ Community ​ Financial ​ Community ​ ​ System, Inc. Bank, N.A. System, Inc. Bank, N.A. ​ System, Inc. Bank, N.A. ​ Tier 1 leverage ratio ​ 9.07 % 7.68 % 9.34 % 7.70 % 9.35 % 7.81 % Common equity Tier 1 capital ratio 14.03 % 11.82 % 14.75 % 12.11 % 15.20 % 12.66 % Tier 1 risk-based capital ratio 14.03 % 11.82 % 14.76 % 12.11 % 15.20 % 12.66 % Total risk-based capital ratio 14.75 % 12.54 % 15.46 % 12.82 % 15.90 % 13.36 % ​ The Company’s tier 1 leverage ratio was 9.07% at the end of the second quarter, down 27 basis points from December 31, 2023 and 28 basis points below its level one year earlier. The decrease in the Tier 1 leverage ratio in comparison to December 31, 2023 was the result of ending shareholders’ equity, excluding intangibles and other comprehensive income or loss items, decreasing 0.5%, primarily as a result of common share repurchases, while average assets, excluding intangibles and the market value adjustment on available-for-sale investment securities, increased 2.5%, primarily due to organic loan growth. The Tier 1 leverage ratio decreased compared to the prior year’s second quarter as average assets, excluding intangibles and the market value adjustment, increased 4.7% primarily due to organic loan growth, while shareholders’ equity, excluding intangibles and other comprehensive income or loss items, increased 1.7% as the impact of net earnings retention outweighed share repurchases. The shareholders’ equity-to-assets ratio was 10.50% at the end of the second quarter of 2024 compared to 10.92% at December 31, 2023 and 10.71% at June 30, 2023. The tangible equity-to-tangible assets ratio, a non-GAAP measure, of 5.38% decreased 0.37 percentage points from December 31, 2023 and increased 0.04 percentage points versus June 30, 2023 (see Table 14 for Reconciliation of Quarterly GAAP to Non-GAAP Measures). The increase in the tangible equity-to-tangible assets ratio, a non-GAAP measure, from one year prior was driven by a $48.6 million, or 6.4%, increase in tangible equity, a non-GAAP measure, as net income retention and a decrease in accumulated other comprehensive loss primarily associated with the investment securities portfolio outweighed the impact of share repurchases between the periods, while tangible assets, a non-GAAP measure, increased $794.6 million, or 5.6%, due primarily to organic loan growth. The decrease in the tangible equity-to-tangible assets ratio, a non-GAAP measure, from December 31, 2023 was driven by a $35.8 million, or 4.2%, decrease in tangible equity, a non-GAAP measure, due mainly to share repurchases, while tangible assets, a non-GAAP measure, increased $343.0 million, or 2.3%, primarily due to organic loan growth. Liquidity Liquidity risk is a measure of the Company’s ability to raise cash when needed at a reasonable cost and minimize any loss. The Company maintains appropriate liquidity levels in both normal operating conditions as well as stressed environments. The Company must be capable of meeting all obligations to its customers at any time and, therefore, the active management of its liquidity position remains an important management objective. The Bank has appointed the Asset Liability Committee (“ALCO”) to manage liquidity risk using policy guidelines and limits on indicators of potential liquidity risk. The indicators are monitored using a scorecard with three risk level limits. These risk indicators measure core liquidity and funding needs, capital at risk and change in available funding sources. The risk indicators are monitored using such metrics as the core basic surplus ratio, unencumbered securities to average assets, free loan collateral to average assets, loans to deposits, deposits to total funding and borrowings to total funding ratios. Given the uncertain nature of the Company’s customers’ demands, as well as the Company’s desire to take advantage of earnings enhancement opportunities, the Company must have adequate sources of on and off-balance sheet funds available that can be utilized when needed. Accordingly, in addition to the liquidity provided by balance sheet cash flows, liquidity must be supplemented with additional sources such as credit lines from correspondent banks and borrowings from the FHLB and the FRB. Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements, large certificates of deposit and the brokered CD market. The primary sources of funds are deposits, which were $13.14 billion at June 30, 2024. The primary sources of non-deposit funds are customer repurchase agreements, and FHLB and FRB overnight advances and term borrowings. At June 30, 2024, there were $215.5 million of customer repurchase agreements, $177.6 million of overnight borrowings, and $533.8 million of FHLB term borrowings outstanding. 64 Table of Contents The Company’s primary sources of available liquidity include cash and cash equivalents, borrowing capacity at the FHLB and FRB, as well as net unpledged investment securities that could be sold, subject to market conditions, or used to collateralize additional funding. Table 13 below details the available sources of liquidity at June 30, 2024. In addition, there was $25.0 million available in an unsecured line of credit with a correspondent bank at June 30, 2024. The Company’s sources of immediately available liquidity of $4.44 billion as of June 30, 2024 represent over 200% of the Company’s estimated uninsured deposits (deposits in excess of FDIC limits), net of collateralized and intercompany deposits (“net estimated uninsured deposits”), estimated to be approximately $2.14 billion. Table 13: Sources of Liquidity ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, (000’s omitted) ​ 2024 ​ 2023 Cash and cash equivalents ​ $ 201,493 ​ $ 190,962 ​ FHLB borrowing capacity ​ 1,182,480 ​ 1,370,085 ​ FRB borrowing capacity ​ 1,165,833 ​ 1,106,806 ​ Net unpledged investment securities ​ 1,891,058 ​ 2,165,590 ​ Total sources of liquidity ​ $ 4,440,864 ​ $ 4,833,443 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net estimated uninsured deposits ​ $ 2,143,772 ​ $ 2,184,635 ​ ​ ​ ​ ​ ​ ​ ​ ​ Total sources of liquidity/net estimated uninsured deposits ​ 207 % 221 % ​ The Company’s primary approach to measuring short-term liquidity is known as the Basic Surplus/Deficit model. It is used to calculate liquidity over two time periods: first, the amount of cash that could be made available within 30 days (calculated as liquid assets less short-term liabilities as a percentage of average assets); and second, a projection of subsequent cash availability over an additional 60 days. As of June 30, 2024, this ratio was 9.7% for 30-days and 9.2% 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%. To measure intermediate risk over the next twelve months, the Company reviews a sources and uses projection. As of June 30, 2024, there is sufficient liquidity available during the next year to cover projected cash outflows. In addition, stress tests on the cash flows are performed for various scenarios ranging from high probability events with a low impact on the liquidity position to low probability events with a high impact on the liquidity position. The results of the stress tests as of June 30, 2024 indicate the Company has sufficient sources of liquidity for the next year in all simulated stressed scenarios. To measure longer-term liquidity, a baseline projection of growth in interest-earning assets and interest-bearing liabilities for five years is made to reflect how liquidity levels could change over time. This five-year measure reflects ample liquidity for loan and other asset growth over the next five years. 65 Table of Contents The possibility of a funding crisis exists at all financial institutions. A funding crisis would most likely result from a shock to the financial system which disrupts orderly short-term funding operations or from a significant tightening of monetary policy that limits the national money supply. Accordingly, management has addressed this issue by formulating a Liquidity Contingency Plan, which has been reviewed and approved by both the Company’s Board of Directors (the “Board”) and the Company’s ALCO. The plan addresses the actions that the Company would take in response to both a short-term and long-term funding crisis. Triggers within the plan and liquidity risk monitor are not by themselves definitive indicators of insufficient liquidity, but rather a mechanism for management to monitor conditions and possibly provide advance warning which could avert or reduce the impact of a crisis. Liquidity triggers are set based on a variety of factors, including Company history, trends, and current operating performance, industry observations, and, as warranted, changes in internal and external economic factors. Indicators include: 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 municipal and nonmunicipal deposits to total funding, and average borrowings to total funding; capital at risk indicators including regulatory ratios; asset quality indicators; and decrease in funds availability indicators which are a combination of internal and external factors such as increased restrictions on borrowing or downturns in the credit market. The Company has established three risk levels for these liquidity triggers that inform the response based on the severity of the circumstances. Responses vary from an assessment of possible funding deficiencies with no impact on normal business operations to immediate action required due to impending funding problems. For more information regarding the risk factor associated with the possibility of a funding crisis, refer to the discussion under the heading “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on February 29, 2024. 66 Table of Contents Forward-Looking Statements This report contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995), which involve significant risks and uncertainties. Forward-looking statements often use words such as “anticipate,” “could,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “forecast,” “believe,” or other words of similar meaning. These statements are based on the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from the results discussed in the forward-looking statements. Moreover, the Company’s plans, objectives and intentions are subject to change based on various factors (some of which are beyond the Company’s control). Factors that could cause actual results to differ from those discussed in the forward-looking statements include: (1) 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; (2) current and future economic and market conditions, including the effects of changes in housing or vehicle prices, higher unemployment rates, disruptions in the commercial real estate market, labor shortages, supply chain disruption, inability to obtain raw materials and supplies, U.S. fiscal debt, budget and tax matters, geopolitical matters and conflicts, and any changes in global economic growth; (3) the effect of, and changes in, monetary and fiscal policies and laws, including future changes in Federal and state statutory income tax rates and interest rate and other policy actions of the Board of Governors of the Federal Reserve System; (4) the effect of changes in the level of checking or savings account deposits on the Company’s funding costs and net interest margin including the possibility of a sudden withdrawal of the Company’s deposits due to rapid spread of information or disinformation regarding the Company’s well-being; (5) future provisions for credit losses on loans and debt securities; (6) changes in nonperforming assets; (7) the effect of a fall in stock market or bond prices on the Company’s fee income businesses, including its employee benefit services, wealth management, and insurance businesses; (8) risks related to credit quality; (9) inflation, interest rate, liquidity, market and monetary fluctuations; (10) the strength of the U.S. economy in general and the strength of the local economies where the Company conducts its business; (11) the timely development of new products and services and customer perception of the overall value thereof (including features, pricing and quality) compared to competing products and services; (12) changes in consumer spending, borrowing and savings habits; (13) technological changes and implementation and financial risks associated with transitioning to new technology-based systems involving large multi-year contracts; (14) the ability of the Company to maintain the security, including cybersecurity, of its financial, accounting, technology, data processing and other operating systems, facilities and data, including customer 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; (16) failure of third parties to provide various services that are important to the Company’s operations; (17) any acquisitions or mergers that might be considered or consummated by the Company and the costs and factors associated therewith, including differences in the actual financial results of the acquisition or merger compared to expectations and the realization of anticipated cost savings and revenue enhancements; (18) the ability to maintain and increase market share and control expenses; (19) the nature, timing and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of the Company and its subsidiaries, including changes in laws and regulations concerning taxes, accounting, banking, service fees, risk management, securities, capital requirements and other aspects of the financial services industry; (20) changes in the Company’s organization, compensation and benefit plans and in the availability of, and compensation levels for, employees in its geographic markets; (21) the outcome of pending or future litigation and government proceedings; (22) the effect of opening new branches to expand the Company’s geographic footprint, including the cost associated with opening and operating the branches and the uncertainty surrounding their success including the ability to meet expectations for future deposit and loan levels and commensurate revenues; (23) the effects of natural disasters could create economic and financial disruption; (24) other risk factors outlined in the Company’s filings with the SEC from time to time; and (25) the success of the Company at managing the risks of the foregoing. The foregoing list of important factors is not all-inclusive. For more information about factors that could cause actual results to differ materially from the Company’s expectations, refer to the discussion under the heading “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on February 29, 2024. Any forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date on which such statement is made. If the Company does update or correct one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. ​ 67 Table of Contents Reconciliation of GAAP to Non-GAAP Measures Table 14: GAAP to Non-GAAP Reconciliations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, June 30, (000’s omitted) ​ 2024 2023 2024 2023 ​ Operating pre-tax, pre-provision net revenue (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 47,915 ​ $ 48,291 ​ $ 88,787 ​ $ 54,089 ​ Income taxes ​ 14,177 ​ ​ 13,182 ​ 26,348 ​ ​ 14,357 ​ Income before income taxes ​ ​ 62,092 ​ ​ 61,473 ​ ​ 115,135 ​ ​ 68,446 ​ Provision for credit losses ​ ​ 2,708 ​ ​ 752 ​ ​ 8,856 ​ ​ 4,252 ​ Pre-tax, pre-provision net revenue (non-GAAP) ​ ​ 64,800 ​ ​ 62,225 ​ ​ 123,991 ​ ​ 72,698 ​ Acquisition expenses ​ ​ 104 ​ ​ (1) ​ ​ 139 ​ ​ 56 ​ Acquisition-related contingent consideration adjustments ​ ​ 0 ​ ​ 1,000 ​ ​ 0 ​ ​ 1,000 ​ Litigation accrual ​ ​ 0 ​ ​ 0 ​ ​ 119 ​ ​ 0 ​ Loss on sales of investment securities ​ ​ 232 ​ ​ 0 ​ ​ 232 ​ ​ 52,329 ​ Gain on debt extinguishment ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ (242) ​ Unrealized (gain) loss on equity securities ​ ​ (867) ​ ​ 50 ​ ​ (883) ​ ​ 50 ​ Amortization of intangible assets ​ ​ 3,877 ​ ​ 3,705 ​ ​ 7,453 ​ ​ 7,372 ​ Operating pre-tax, pre-provision net revenue (non-GAAP) ​ $ 68,146 ​ $ 66,979 ​ $ 131,051 ​ $ 133,263 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating pre-tax, pre-provision net revenue per share (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share (GAAP) ​ $ 0.91 ​ $ 0.89 ​ $ 1.67 ​ $ 1.00 ​ Income taxes ​ ​ 0.26 ​ ​ 0.25 ​ ​ 0.50 ​ ​ 0.27 ​ Income before income taxes ​ ​ 1.17 ​ ​ 1.14 ​ ​ 2.17 ​ ​ 1.27 ​ Provision for credit losses ​ ​ 0.06 ​ ​ 0.01 ​ ​ 0.16 ​ ​ 0.08 ​ Pre-tax, pre-provision net revenue per share (non-GAAP) ​ ​ 1.23 ​ ​ 1.15 ​ ​ 2.33 ​ ​ 1.35 ​ Acquisition expenses ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Acquisition-related contingent consideration adjustments ​ ​ 0.00 ​ ​ 0.02 ​ ​ 0.00 ​ ​ 0.02 ​ Litigation accrual ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Loss on sales of investment securities ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.96 ​ Gain on debt extinguishment ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Unrealized (gain) loss on equity securities ​ ​ (0.01) ​ ​ 0.00 ​ ​ (0.01) ​ ​ 0.00 ​ Amortization of intangible assets ​ ​ 0.07 ​ ​ 0.07 ​ ​ 0.14 ​ ​ 0.13 ​ Operating pre-tax, pre-provision net revenue per share (non-GAAP) ​ $ 1.29 ​ $ 1.24 ​ $ 2.46 ​ $ 2.46 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating net income (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 47,915 ​ $ 48,291 ​ $ 88,787 ​ $ 54,089 ​ Acquisition expenses ​ ​ 104 ​ ​ (1) ​ ​ 139 ​ ​ 56 ​ Tax effect of acquisition expenses ​ ​ (23) ​ ​ 0 ​ ​ (31) ​ ​ (12) ​ Subtotal (non-GAAP) ​ ​ 47,996 ​ ​ 48,290 ​ ​ 88,895 ​ ​ 54,133 ​ Acquisition-related contingent consideration adjustments ​ ​ 0 ​ ​ 1,000 ​ ​ 0 ​ ​ 1,000 ​ Tax effect of acquisition-related contingent consideration adjustments ​ ​ 0 ​ ​ (214) ​ ​ 0 ​ ​ (214) ​ Subtotal (non-GAAP) ​ ​ 47,996 ​ ​ 49,076 ​ ​ 88,895 ​ ​ 54,919 ​ Litigation accrual ​ ​ 0 ​ ​ 0 ​ ​ 119 ​ ​ 0 ​ Tax effect of litigation accrual ​ ​ 0 ​ ​ 0 ​ ​ (26) ​ ​ 0 ​ Subtotal (non-GAAP) ​ ​ 47,996 ​ ​ 49,076 ​ ​ 88,988 ​ ​ 54,919 ​ Loss on sales of investment securities ​ ​ 232 ​ ​ 0 ​ ​ 232 ​ ​ 52,329 ​ Tax effect of loss on sales of investment securities ​ ​ (52) ​ ​ 0 ​ ​ (52) ​ ​ (11,171) ​ Subtotal (non-GAAP) ​ ​ 48,176 ​ ​ 49,076 ​ ​ 89,168 ​ ​ 96,077 ​ Gain on debt extinguishment ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ (242) ​ Tax effect of gain on debt extinguishment ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 52 ​ Subtotal (non-GAAP) ​ ​ 48,176 ​ ​ 49,076 ​ ​ 89,168 ​ ​ 95,887 ​ Unrealized (gain) loss on equity securities ​ ​ (867) ​ ​ 50 ​ ​ (883) ​ ​ 50 ​ Tax effect of unrealized gain (loss) on equity securities ​ ​ 193 ​ ​ (11) ​ ​ 197 ​ ​ (11) ​ Subtotal (non-GAAP) ​ ​ 47,502 ​ ​ 49,115 ​ ​ 88,482 ​ ​ 95,926 ​ Amortization of intangible assets ​ ​ 3,877 ​ ​ 3,705 ​ ​ 7,453 ​ ​ 7,372 ​ Tax effect of amortization of intangible assets ​ ​ (864) ​ ​ (793) ​ ​ (1,651) ​ ​ (1,576) ​ Operating net income (non-GAAP) ​ $ 50,515 ​ $ 52,027 ​ $ 94,284 ​ $ 101,722 ​ ​ 68 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ ​ June 30, June 30, ​ (000’s omitted) ​ 2024 2023 ​ 2024 ​ 2023 ​ Operating diluted earnings per share (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share (GAAP) ​ $ 0.91 ​ $ 0.89 ​ $ 1.67 ​ $ 1.00 ​ Acquisition expenses ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Tax effect of acquisition expenses ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ ​ 0.91 ​ ​ 0.89 ​ ​ 1.67 ​ ​ 1.00 ​ Acquisition-related contingent consideration adjustments ​ ​ 0.00 ​ ​ 0.02 ​ ​ 0.00 ​ ​ 0.02 ​ Tax effect of acquisition-related contingent consideration adjustments ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ ​ 0.91 ​ ​ 0.91 ​ ​ 1.67 ​ ​ 1.02 ​ Litigation accrual ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Tax effect of litigation accrual ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ ​ 0.91 ​ ​ 0.91 ​ ​ 1.67 ​ ​ 1.02 ​ Loss on sales of investment securities ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.96 ​ Tax effect of loss on sales of investment securities ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ (0.21) ​ Subtotal (non-GAAP) ​ ​ 0.91 ​ ​ 0.91 ​ ​ 1.67 ​ ​ 1.77 ​ Gain on debt extinguishment ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Tax effect of gain on debt extinguishment ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ ​ 0.91 ​ ​ 0.91 ​ ​ 1.67 ​ ​ 1.77 ​ Unrealized gain (loss) on equity securities ​ ​ (0.01) ​ ​ 0.00 ​ ​ (0.02) ​ ​ 0.00 ​ Tax effect of unrealized gain (loss) on equity securities ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ ​ 0.90 ​ ​ 0.91 ​ ​ 1.65 ​ ​ 1.77 ​ Amortization of intangible assets ​ ​ 0.07 ​ ​ 0.07 ​ ​ 0.14 ​ ​ 0.13 ​ Tax effect of amortization of intangible assets ​ ​ (0.02) ​ ​ (0.02) ​ ​ (0.02) ​ ​ (0.02) ​ Operating diluted earnings per share (non-GAAP) ​ $ 0.95 ​ $ 0.96 ​ $ 1.77 ​ $ 1.88 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 47,915 ​ $ 48,291 ​ $ 88,787 ​ $ 54,089 ​ Average total assets ​ 15,778,974 ​ 15,150,001 ​ ​ 15,787,920 ​ ​ 15,257,833 ​ Return on assets (GAAP) ​ 1.22 % 1.28 % ​ 1.13 % ​ 0.71 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating return on assets (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating net income (non-GAAP) ​ $ 50,515 ​ $ 52,027 ​ $ 94,284 ​ $ 101,722 ​ Average total assets ​ 15,778,974 ​ 15,150,001 ​ ​ 15,787,920 ​ ​ 15,257,833 ​ Operating return on assets (non-GAAP) ​ 1.29 % 1.38 % ​ 1.20 % ​ 1.34 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 47,915 ​ $ 48,291 ​ $ 88,787 ​ $ 54,089 ​ Average total equity ​ ​ 1,633,875 ​ ​ 1,632,992 ​ ​ 1,657,543 ​ ​ 1,605,010 ​ Return on equity (GAAP) ​ ​ 11.79 % ​ 11.86 % ​ 10.77 % ​ 6.80 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating return on equity (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating net income (non-GAAP) ​ $ 50,515 ​ $ 52,027 ​ $ 94,284 ​ $ 101,722 ​ Average total equity ​ ​ 1,633,875 ​ ​ 1,632,992 ​ ​ 1,657,543 ​ ​ 1,605,010 ​ Operating return on equity (non-GAAP) ​ 12.43 % 12.78 % ​ 11.44 % ​ 12.78 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest margin ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 109,409 ​ $ 109,279 ​ $ 216,399 ​ $ 220,309 ​ Total average interest-earning assets ​ ​ 14,604,973 ​ ​ 13,940,636 ​ ​ 14,591,808 ​ ​ 14,071,904 ​ Net interest margin ​ ​ 3.01 % ​ 3.14 % ​ 2.98 % ​ 3.16 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest margin (FTE) (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 109,409 ​ $ 109,279 ​ $ 216,399 ​ $ 220,309 ​ Fully tax-equivalent adjustment (non-GAAP) ​ 953 ​ 1,080 ​ ​ 1,967 ​ ​ 2,171 ​ Fully tax-equivalent net interest income (non-GAAP) ​ ​ 110,362 ​ ​ 110,359 ​ ​ 218,366 ​ ​ 222,480 ​ Total average interest-earning assets ​ 14,604,973 ​ 13,940,636 ​ ​ 14,591,808 ​ ​ 14,071,904 ​ Net interest margin (FTE) (non-GAAP) ​ 3.04 % 3.18 % ​ 3.01 % ​ 3.19 % ​ 69 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ (000’s omitted) 2024 2023 2024 2023 ​ Operating noninterest revenues (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues (GAAP) ​ $ 74,390 ​ $ 65,984 ​ $ 144,675 ​ $ 79,479 ​ Loss on sales of investment securities ​ ​ 232 ​ ​ 0 ​ 232 ​ 52,329 ​ Gain on debt extinguishment ​ ​ 0 ​ ​ 0 ​ 0 ​ (242) ​ Unrealized (gain) loss on equity securities ​ ​ (867) ​ ​ 50 ​ ​ (883) ​ ​ 50 ​ Total operating noninterest revenues (non-GAAP) ​ $ 73,755 ​ $ 66,034 ​ $ 144,024 ​ $ 131,616 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating noninterest expenses (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses (GAAP) ​ $ 118,999 ​ $ 113,038 ​ $ 237,083 ​ $ 227,090 ​ Acquisition expenses ​ ​ (104) ​ ​ 1 ​ ​ (139) ​ ​ (56) ​ Acquisition-related contingent consideration adjustments ​ ​ 0 ​ ​ (1,000) ​ ​ 0 ​ ​ (1,000) ​ Litigation accrual ​ ​ 0 ​ ​ 0 ​ ​ (119) ​ ​ 0 ​ Amortization of intangible assets ​ ​ (3,877) ​ ​ (3,705) ​ ​ (7,453) ​ ​ (7,372) ​ Total operating noninterest expenses (non-GAAP) ​ $ 115,018 ​ $ 108,334 ​ $ 229,372 ​ $ 218,662 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating revenues (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (GAAP) ​ $ 109,409 ​ $ 109,279 ​ $ 216,399 ​ $ 220,309 ​ Noninterest revenues (GAAP) ​ ​ 74,390 ​ ​ 65,984 ​ ​ 144,675 ​ ​ 79,479 ​ Total revenues (GAAP) ​ ​ 183,799 ​ ​ 175,263 ​ 361,074 ​ 299,788 ​ Loss on sales of investment securities ​ ​ 232 ​ ​ 0 ​ ​ 232 ​ ​ 52,329 ​ Gain on debt extinguishment ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ (242) ​ Unrealized (gain) loss on equity securities ​ ​ (867) ​ ​ 50 ​ ​ (883) ​ ​ 50 ​ Total operating revenues (non-GAAP) ​ $ 183,164 ​ $ 175,313 ​ $ 360,423 ​ $ 351,925 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues/total revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total noninterest revenues (GAAP) – numerator ​ $ 74,390 ​ $ 65,984 ​ $ 144,675 ​ $ 79,479 ​ Total revenues (GAAP) – denominator ​ ​ 183,799 ​ ​ 175,263 ​ ​ 361,074 ​ ​ 299,788 ​ Noninterest revenues/total revenues (GAAP) ​ ​ 40.5 % ​ 37.6 % ​ 40.1 % ​ 26.5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating noninterest revenues/operating revenues (FTE) (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total operating noninterest revenues (non-GAAP) – numerator ​ $ 73,755 ​ $ 66,034 ​ $ 144,024 ​ $ 131,616 ​ Total operating revenues (non-GAAP) ​ ​ 183,164 ​ ​ 175,313 ​ ​ 360,423 ​ ​ 351,925 ​ Fully tax-equivalent adjustment (non-GAAP) ​ ​ 953 ​ ​ 1,080 ​ ​ 1,967 ​ ​ 2,171 ​ Total operating revenues (FTE) (non-GAAP) – denominator ​ ​ 184,117 ​ ​ 176,393 ​ ​ 362,390 ​ ​ 354,096 ​ Operating noninterest revenues/operating revenues (FTE) (non-GAAP) ​ ​ 40.1 % ​ 37.4 % ​ 39.7 % ​ 37.2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio (GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total noninterest expenses (GAAP) – numerator ​ $ 118,999 ​ $ 113,038 ​ $ 237,083 ​ $ 227,090 ​ Total revenues (GAAP) – denominator ​ ​ 183,799 ​ ​ 175,263 ​ ​ 361,074 ​ ​ 299,788 ​ Efficiency ratio (GAAP) ​ ​ 64.7 % ​ 64.5 % ​ 65.7 % ​ 75.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating efficiency ratio (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total operating noninterest expenses (non-GAAP) – numerator ​ $ 115,018 ​ $ 108,334 ​ $ 229,372 ​ $ 218,662 ​ Total operating revenues (FTE) (non-GAAP) – denominator ​ ​ 184,117 ​ ​ 176,393 ​ ​ 362,390 ​ ​ 354,096 ​ Operating efficiency ratio (non-GAAP) ​ ​ 62.5 % ​ 61.4 % ​ 63.3 % ​ 61.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on tangible equity (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 47,915 ​ $ 48,291 ​ $ 88,787 ​ $ 54,089 ​ Average shareholders’ equity ​ ​ 1,633,875 ​ ​ 1,632,992 ​ ​ 1,657,543 ​ ​ 1,605,010 ​ Average goodwill and intangible assets, net ​ ​ (905,134) ​ ​ (900,038) ​ ​ (903,674) ​ ​ (900,326) ​ Average deferred taxes on goodwill and intangible assets, net ​ ​ 45,177 ​ ​ 45,186 ​ ​ 45,060 ​ ​ 45,567 ​ Average tangible common equity (non-GAAP) ​ ​ 773,918 ​ ​ 778,140 ​ ​ 798,929 ​ ​ 750,251 ​ Return on tangible equity (non-GAAP) ​ ​ 24.90 % ​ 24.89 % ​ 22.35 % ​ 14.54 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating return on tangible equity (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating net income (non-GAAP) ​ $ 50,515 ​ $ 52,027 ​ $ 94,284 ​ $ 101,722 ​ Average tangible common equity (non-GAAP) ​ ​ 773,918 ​ ​ 778,140 ​ ​ 798,929 ​ ​ 750,251 ​ Operating return on tangible equity (non-GAAP) ​ ​ 26.25 % ​ 26.82 % ​ 23.73 % ​ 27.34 % ​ 70 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ June 30, ​ (000’s omitted) 2024 2023 2023 ​ Total tangible assets (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets (GAAP) ​ $ 15,906,816 ​ $ 15,555,753 ​ $ 15,108,050 ​ Goodwill and intangible assets, net ​ ​ (905,780) ​ ​ (897,987) ​ ​ (901,709) ​ Deferred taxes on goodwill and intangible assets, net ​ ​ 44,921 ​ ​ 45,198 ​ ​ 45,003 ​ Total tangible assets (non-GAAP) ​ $ 15,045,957 ​ $ 14,702,964 ​ $ 14,251,344 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total tangible common equity (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity (GAAP) ​ $ 1,670,180 ​ $ 1,697,937 ​ $ 1,617,406 ​ Goodwill and intangible assets, net ​ ​ (905,780) ​ ​ (897,987) ​ ​ (901,709) ​ Deferred taxes on goodwill and intangible assets, net ​ ​ 44,921 ​ ​ 45,198 ​ ​ 45,003 ​ Total tangible common equity (non-GAAP) ​ $ 809,321 ​ $ 845,148 ​ $ 760,700 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity-to-assets ratio at quarter end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total shareholders’ equity (GAAP) – numerator ​ $ 1,670,180 ​ $ 1,697,937 ​ $ 1,617,406 ​ Total assets (GAAP) – denominator ​ ​ 15,906,816 ​ ​ 15,555,753 ​ ​ 15,108,050 ​ Shareholders’ equity-to-assets ratio at quarter end (GAAP) ​ ​ 10.50 % ​ 10.92 % ​ 10.71 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible equity-to-tangible assets ratio at quarter end (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total tangible common equity (non-GAAP) – numerator ​ $ 809,321 ​ $ 845,148 ​ $ 760,700 ​ Total tangible assets (non-GAAP) – denominator ​ ​ 15,045,957 ​ ​ 14,702,964 ​ ​ 14,251,344 ​ Tangible equity-to-tangible assets ratio at quarter end (non-GAAP) ​ ​ 5.38 % ​ 5.75 % ​ 5.34 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Book value (GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total shareholders’ equity (GAAP) – numerator ​ $ 1,670,180 ​ $ 1,697,937 ​ $ 1,617,406 ​ Period end common shares outstanding – denominator ​ ​ 52,523 ​ ​ 53,327 ​ ​ 53,528 ​ Book value (GAAP) ​ $ 31.80 ​ $ 31.84 ​ $ 30.22 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible book value (non-GAAP) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total tangible common equity (non-GAAP) – numerator ​ $ 809,321 ​ $ 845,148 ​ $ 760,700 ​ Period end common shares outstanding – denominator ​ ​ 52,523 ​ ​ 53,327 ​ ​ 53,528 ​ Tangible book value (non-GAAP) ​ $ 15.41 ​ $ 15.85 ​ $ 14.21 ​ ​ ​