UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 001-13695
(Exact name of registrant as specified in its charter)
Delaware |
|
|
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
5790 Widewaters Parkway, DeWitt, New York | | 13214-1883 |
(Address of principal executive offices) | | (Zip Code) |
(315) 445-2282
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, $1.00 par value per share | | CBU | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock, par value $1.00 per share, outstanding as of the close of business on April 28,October 31, 2023: 53,728,78653,385,565 shares
TABLE OF CONTENTS
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| | Consolidated Statements of Condition | | 3 |
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| | Consolidated Statements of Income Three and nine months ended | | 4 |
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| | Consolidated Statements of Cash Flows | |
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| | Notes to the Consolidated Financial Statements | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
Part I. Financial Information
Item 1. Financial Statements
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
(In Thousands, Except Share Data)
| | | | | | | | | | | | |
| | March 31, | | December 31, | | September 30, | | December 31, | ||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Assets: | | |
|
| |
| | |
|
| |
|
Cash and cash equivalents | | $ | 189,298 | | $ | 209,896 | | $ | 455,807 | | $ | 209,896 |
Available-for-sale investment securities, includes pledged securities that can be sold or repledged of $640,396 and $466,902, respectively (cost of $3,871,881 and $4,675,474, respectively) | |
| 3,485,993 | |
| 4,151,851 | ||||||
Held-to-maturity securities (fair value of $1,083,330 and $1,034,795, respectively) | | | 1,090,235 | | | 1,079,695 | ||||||
Equity and other securities (cost of $53,595 and $82,424, respectively) | |
| 54,513 | |
| 83,342 | ||||||
Available-for-sale investment securities includes pledged securities that can be sold or repledged of $542,828 and $466,902, respectively (cost of $3,314,815 and $4,675,474, respectively) | |
| 2,767,636 | |
| 4,151,851 | ||||||
Held-to-maturity securities (fair value of $990,660 and $1,034,795, respectively) | | | 1,125,540 | | | 1,079,695 | ||||||
Equity and other securities (cost of $66,006 and $82,424, respectively) | |
| 66,825 | |
| 83,342 | ||||||
| | | | | | | | | | | | |
Loans, net | |
| 8,982,335 | |
| 8,809,394 | ||||||
Loans | |
| 9,450,066 | |
| 8,809,394 | ||||||
Allowance for credit losses | |
| (63,170) | |
| (61,059) | |
| (64,945) | |
| (61,059) |
Net loans | |
| 8,919,165 | |
| 8,748,335 | ||||||
Loans, net of allowance for credit losses | |
| 9,385,121 | |
| 8,748,335 | ||||||
| |
| | | | | |
| | | | |
Goodwill | |
| 842,936 | |
| 841,841 | |
| 845,396 | |
| 841,841 |
Core deposit intangibles, net | |
| 11,108 | |
| 12,304 | |
| 9,087 | |
| 12,304 |
Other intangibles, net | |
| 46,870 | |
| 48,692 | |
| 46,851 | |
| 48,692 |
Goodwill and intangible assets, net | |
| 900,914 | |
| 902,837 | |
| 901,334 | |
| 902,837 |
| | | | | | | | | | | | |
Premises and equipment, net | | | 158,562 | | | 160,778 | | | 174,749 | | | 160,778 |
Accrued interest and fees receivable | |
| 42,476 | |
| 52,613 | |
| 46,933 | |
| 52,613 |
Other assets | |
| 414,797 | |
| 446,304 | |
| 462,377 | |
| 446,304 |
| | | | | | | | | | | | |
Total assets | | $ | 15,255,953 | | $ | 15,835,651 | | $ | 15,386,322 | | $ | 15,835,651 |
| |
| | |
| | |
| | |
| |
Liabilities: | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 3,949,801 | | $ | 4,140,617 | | $ | 3,780,519 | | $ | 4,140,617 |
Interest-bearing deposits | |
| 9,160,871 | |
| 8,871,691 | |
| 9,250,269 | |
| 8,871,691 |
Total deposits | |
| 13,110,672 | |
| 13,012,308 | |
| 13,030,788 | |
| 13,012,308 |
| | | | | | | | | | | | |
Overnight borrowings | |
| 58,400 | |
| 768,400 | |
| 0 | |
| 768,400 |
Securities sold under agreement to repurchase, short-term | |
| 304,607 | |
| 346,652 | |
| 330,252 | |
| 346,652 |
Other Federal Home Loan Bank borrowings | |
| 17,284 | |
| 19,474 | |
| 316,837 | |
| 19,474 |
Subordinated notes payable | |
| 0 | |
| 3,249 | |
| 0 | |
| 3,249 |
Accrued interest and other liabilities | |
| 130,977 | |
| 133,863 | |
| 153,506 | |
| 133,863 |
Total liabilities | |
| 13,621,940 | |
| 14,283,946 | |
| 13,831,383 | |
| 14,283,946 |
| |
| | |
| | |
| | |
| |
Commitments and contingencies (See Note I) | | | | | | | ||||||
Commitments and contingencies (See Note J) | | | | | | | ||||||
| |
| | |
| | |
| | |
| |
Shareholders’ equity: | | | | | | | | | | | | |
Preferred stock, $1.00 par value, 500,000 shares authorized, 0 shares issued | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Common stock, $1.00 par value, 75,000,000 shares authorized; 54,359,535 and 54,190,201 shares issued, respectively | |
| 54,360 | |
| 54,190 | ||||||
Common stock, $1.00 par value, 75,000,000 shares authorized; 54,363,812 and 54,190,201 shares issued, respectively | |
| 54,364 | |
| 54,190 | ||||||
Additional paid-in capital | |
| 1,052,802 | |
| 1,050,231 | |
| 1,057,433 | |
| 1,050,231 |
Retained earnings | |
| 1,134,527 | |
| 1,152,452 | |
| 1,179,196 | |
| 1,152,452 |
Accumulated other comprehensive loss | |
| (578,085) | |
| (686,439) | |
| (691,693) | |
| (686,439) |
Treasury stock, at cost (634,618 shares, including 117,103 shares held by deferred compensation arrangements at March 31, 2023 and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022) | |
| (36,325) | |
| (26,485) | ||||||
Deferred compensation arrangements (117,103 and 135,437 shares, respectively) | |
| 6,734 | |
| 7,756 | ||||||
Treasury stock, at cost (936,823 shares, including 119,308 shares held by deferred compensation arrangements at September 30, 2023, and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022) | |
| (51,198) | |
| (26,485) | ||||||
Deferred compensation arrangements (119,308 and 135,437 shares, respectively) | |
| 6,837 | |
| 7,756 | ||||||
Total shareholders’ equity | |
| 1,634,013 | |
| 1,551,705 | |
| 1,554,939 | |
| 1,551,705 |
| | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 15,255,953 | | $ | 15,835,651 | | $ | 15,386,322 | | $ | 15,835,651 |
See accompanying notes to consolidated financial statements (unaudited).
3
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands, Except Per-Share Data)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2023 |
| 2022 | ||
Interest income: |
| |
|
| |
|
Interest and fees on loans | | $ | 100,362 | | $ | 72,514 |
Interest and dividends on taxable investments | |
| 21,938 | |
| 22,592 |
Interest and dividends on nontaxable investments | |
| 3,582 | |
| 2,590 |
Total interest income | |
| 125,882 | |
| 97,696 |
| | | | | | |
Interest expense: | |
| | |
| |
Interest on deposits | |
| 9,928 | |
| 2,565 |
Interest on borrowings | |
| 4,886 | |
| 221 |
Interest on subordinated notes payable | |
| 38 | |
| 38 |
Total interest expense | |
| 14,852 | |
| 2,824 |
| | | | | | |
Net interest income | |
| 111,030 | |
| 94,872 |
Provision for credit losses | |
| 3,500 | |
| 906 |
Net interest income after provision for credit losses | |
| 107,530 | |
| 93,966 |
| | | | | | |
Noninterest revenues: | |
| | |
| |
Deposit service fees | |
| 15,134 | |
| 16,155 |
Mortgage banking | | | 275 | |
| 155 |
Other banking services | |
| 1,022 | |
| 739 |
Employee benefit services | |
| 29,384 | |
| 29,580 |
Insurance services | |
| 11,522 | |
| 10,409 |
Wealth management services | |
| 8,245 | | | 8,633 |
Loss on sales of investment securities | | | (52,329) | | | 0 |
Gain on debt extinguishment | | | 242 | | | 0 |
Unrealized gain on equity securities | |
| 0 | |
| 2 |
Total noninterest revenues | |
| 13,495 | |
| 65,673 |
| | | | | | |
Noninterest expenses: | |
| | |
| |
Salaries and employee benefits | |
| 71,487 | |
| 61,648 |
Data processing and communications | |
| 13,129 | |
| 12,659 |
Occupancy and equipment | |
| 11,024 | |
| 10,952 |
Amortization of intangible assets | |
| 3,667 | |
| 3,732 |
Legal and professional fees | |
| 5,201 | |
| 3,617 |
Business development and marketing | |
| 2,901 | |
| 2,743 |
Acquisition expenses | | | 57 | | | 299 |
Other expenses | |
| 6,586 | |
| 4,157 |
Total noninterest expenses | |
| 114,052 | |
| 99,807 |
| | | | | | |
Income before income taxes | |
| 6,973 | |
| 59,832 |
Income taxes | |
| 1,175 | |
| 12,777 |
Net income | | $ | 5,798 | | $ | 47,055 |
| | | | | | |
Basic earnings per share | | $ | 0.11 | | $ | 0.87 |
Diluted earnings per share | | $ | 0.11 | | $ | 0.86 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Interest income: |
| |
|
| |
|
| |
|
| |
|
Interest and fees on loans | | $ | 115,138 | | $ | 88,434 | | $ | 322,775 | | $ | 238,907 |
Interest and dividends on taxable investments | |
| 18,969 | |
| 23,737 | |
| 61,718 | |
| 71,228 |
Interest and dividends on nontaxable investments | |
| 3,449 | |
| 3,704 | |
| 10,569 | |
| 9,611 |
Total interest income | |
| 137,556 | |
| 115,875 | |
| 395,062 | |
| 319,746 |
| | | | | | | | | | | | |
Interest expense: | |
| | |
| | |
| | |
| |
Interest on deposits | |
| 24,555 | |
| 3,855 | |
| 53,431 | |
| 9,111 |
Interest on borrowings | |
| 5,215 | |
| 1,588 | |
| 13,498 | |
| 2,113 |
Interest on subordinated notes payable | |
| 0 | |
| 38 | |
| 38 | |
| 115 |
Total interest expense | |
| 29,770 | |
| 5,481 | |
| 66,967 | |
| 11,339 |
| | | | | | | | | | | | |
Net interest income | |
| 107,786 | |
| 110,394 | |
| 328,095 | |
| 308,407 |
Provision for credit losses | |
| 2,878 | |
| 5,061 | |
| 7,130 | |
| 12,005 |
Net interest income after provision for credit losses | |
| 104,908 | |
| 105,333 | |
| 320,965 | |
| 296,402 |
| | | | | | | | | | | | |
Noninterest revenues: | |
| | |
| | |
| | |
| |
Deposit service fees | |
| 16,007 | |
| 17,452 | |
| 46,839 | |
| 49,745 |
Mortgage banking | | | 113 | |
| 171 | |
| 399 | |
| 595 |
Other banking services | |
| 1,471 | |
| 912 | |
| 4,535 | |
| 2,521 |
Employee benefit services | |
| 29,997 | |
| 27,884 | |
| 87,946 | |
| 86,385 |
Insurance services | |
| 12,113 | |
| 11,332 | |
| 35,495 | |
| 31,521 |
Wealth management services | |
| 7,934 | | | 7,502 | | | 24,037 | | | 24,276 |
Loss on sales of investment securities | | | 0 | | | 0 | | | (52,329) | | | 0 |
Gain on debt extinguishment | | | 0 | | | 0 | | | 242 | | | 0 |
Unrealized loss on equity securities | |
| (49) | | | (4) | |
| (99) | | | (24) |
Total noninterest revenues | |
| 67,586 | |
| 65,249 | |
| 147,065 | |
| 195,019 |
| | | | | | | | | | | | |
Noninterest expenses: | |
| | |
| | |
| | |
| |
Salaries and employee benefits | |
| 70,687 | |
| 66,190 | |
| 210,208 | |
| 193,236 |
Data processing and communications | |
| 15,480 | |
| 14,184 | |
| 42,900 | |
| 40,454 |
Occupancy and equipment | |
| 10,358 | |
| 10,364 | |
| 31,835 | |
| 31,740 |
Amortization of intangible assets | |
| 3,576 | |
| 3,837 | |
| 10,948 | |
| 11,420 |
Legal and professional fees | |
| 3,826 | |
| 3,194 | |
| 12,129 | |
| 10,196 |
Business development and marketing | |
| 4,628 | |
| 3,616 | |
| 12,096 | |
| 9,975 |
Acquisition expenses | | | 0 | | | 409 | | | 56 | | | 4,668 |
Acquisition-related contingent consideration adjustment | | | 80 | | | 0 | | | 1,080 | | | 400 |
Other expenses | |
| 7,869 | |
| 6,391 | | | 22,342 | |
| 16,327 |
Total noninterest expenses | |
| 116,504 | |
| 108,185 | | | 343,594 | |
| 318,416 |
| | | | | | | | | | | | |
Income before income taxes | |
| 55,990 | |
| 62,397 | | | 124,436 | |
| 173,005 |
Income taxes | |
| 11,861 | |
| 13,706 | | | 26,218 | |
| 37,454 |
Net income | | $ | 44,129 | | $ | 48,691 | | $ | 98,218 | | $ | 135,551 |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.51 |
Diluted earnings per share | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.49 |
See accompanying notes to consolidated financial statements (unaudited).
4
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In Thousands)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2023 |
| 2022 | ||
Pension and other post retirement obligations: | | |
|
| |
|
Amortization of actuarial (gains) losses included in net periodic pension cost, gross | | $ | (549) | | $ | 220 |
Tax effect | |
| 134 | |
| (54) |
Amortization of actuarial (gains) losses included in net periodic pension cost, net | |
| (415) | |
| 166 |
| | | | | | |
Amortization of prior service cost included in net periodic pension cost, gross | |
| 160 | |
| 109 |
Tax effect | |
| (39) | |
| (26) |
Amortization of prior service cost included in net periodic pension cost, net | |
| 121 | |
| 83 |
| | | | | | |
Other comprehensive (loss) income related to pension and other post-retirement obligations, net of taxes | |
| (294) | |
| 249 |
| | | | | | |
Unrealized gains (losses) on investment securities: | |
| | |
| |
Net unrealized holding gains (losses) on investment securities, gross | |
| 91,260 | |
| (358,759) |
Tax effect | |
| (22,227) | |
| 87,143 |
Net unrealized holding gains (losses) on investment securities, net | |
| 69,033 | |
| (271,616) |
| | | | | | |
Reclassification adjustment for net losses included in net income, gross | |
| 52,329 | |
| 0 |
Tax effect | |
| (12,714) | |
| 0 |
Reclassification adjustment for net losses included in net income, net | |
| 39,615 | |
| 0 |
| | | | | | |
Other comprehensive gain (loss) related to unrealized gains (losses) on investment securities, net of taxes | |
| 108,648 | |
| (271,616) |
| | | | | | |
Other comprehensive income (loss), net of tax | |
| 108,354 | |
| (271,367) |
Net income | |
| 5,798 | |
| 47,055 |
Comprehensive income (loss) | | $ | 114,152 | | $ | (224,312) |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Pension and other post retirement obligations: | | |
|
| |
|
| |
|
| |
|
Amortization of actuarial (gains) losses included in net periodic pension cost, gross | | $ | (550) | | $ | 220 | | $ | (1,648) | | $ | 660 |
Tax effect | |
| 134 | |
| (53) | |
| 401 | |
| (160) |
Amortization of actuarial (gains) losses included in net periodic pension cost, net | |
| (416) | |
| 167 | |
| (1,247) | | | 500 |
| | | | | | | | | | | | |
Amortization of prior service cost included in net periodic pension cost, gross | |
| 160 | |
| 109 | |
| 480 | |
| 327 |
Tax effect | |
| (39) | |
| (26) | |
| (117) | |
| (79) |
Amortization of prior service cost included in net periodic pension cost, net | |
| 121 | |
| 83 | |
| 363 | |
| 248 |
| | | | | | | | | | | | |
Other comprehensive (loss) income related to pension and other post-retirement obligations, net of taxes | |
| (295) | |
| 250 | |
| (884) | |
| 748 |
| | | | | | | | | | | | |
Net unrealized losses on investment securities: | |
| | |
| | |
| | |
| |
Net unrealized holding losses on investment securities, gross | |
| (105,326) | |
| (301,023) | |
| (58,105) | |
| (919,962) |
Tax effect | |
| 25,630 | |
| 73,119 | |
| 14,120 | |
| 223,460 |
Net unrealized holding losses on investment securities, net | |
| (79,696) | |
| (227,904) | |
| (43,985) | |
| (696,502) |
| | | | | | | | | | | | |
Reclassification adjustment for net losses included in net income, gross | |
| 0 | |
| 0 | |
| 52,329 | |
| 0 |
Tax effect | |
| 0 | |
| 0 | |
| (12,714) | |
| 0 |
Reclassification adjustment for net losses included in net income, net | |
| 0 | |
| 0 | |
| 39,615 | |
| 0 |
| | | | | | | | | | | | |
Other comprehensive loss related to unrealized losses on investment securities, net of taxes | |
| (79,696) | |
| (227,904) | |
| (4,370) | |
| (696,502) |
| | | | | | | | | | | | |
Other comprehensive loss, net of taxes | |
| (79,991) | |
| (227,654) | |
| (5,254) | |
| (695,754) |
Net income | |
| 44,129 | |
| 48,691 | |
| 98,218 | |
| 135,551 |
Comprehensive (loss) income | | $ | (35,862) | | $ | (178,963) | | $ | 92,964 | | $ | (560,203) |
| | | | | | | | | | | | |
| | As of | | As of | ||||||||
| | March 31, | | December 31, | | September 30, | | December 31, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Accumulated Other Comprehensive Loss By Component: |
| | | | | |
| | | | | |
Unrealized loss for pension and other post-retirement obligations |
| $ | (41,922) | | $ | (41,533) |
| $ | (42,701) | | $ | (41,533) |
Tax effect |
|
| 10,327 | |
| 10,232 |
|
| 10,516 | |
| 10,232 |
Net unrealized loss for pension and other post-retirement obligations |
|
| (31,595) | |
| (31,301) |
|
| (32,185) | |
| (31,301) |
| | | | | | | | | | | | |
Unrealized loss on investment securities |
|
| (721,194) | |
| (864,783) |
|
| (870,559) | |
| (864,783) |
Tax effect |
|
| 174,704 | |
| 209,645 |
|
| 211,051 | |
| 209,645 |
Net unrealized loss on investment securities |
|
| (546,490) | |
| (655,138) |
|
| (659,508) | |
| (655,138) |
| | | | | | | | | | | | |
Accumulated other comprehensive loss |
| $ | (578,085) | | $ | (686,439) |
| $ | (691,693) | | $ | (686,439) |
See accompanying notes to consolidated financial statements (unaudited).
5
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
Three months ended March 31,September 30, 2023 and 2022
(In Thousands, Except Share Data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | | | | |
| | Common Stock | | Additional | | | | | Other | | | | | Deferred | | | | ||||||
| | Shares | | Amount | | Paid-In | | Retained | | Comprehensive | | Treasury | | Compensation | |
| | ||||||
|
| Outstanding |
| Issued |
| Capital |
| Earnings |
| Loss |
| Stock |
| Arrangements |
| Total | |||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2023 | | 53,528,090 | | $ | 54,364 | | $ | 1,054,871 | | $ | 1,159,126 | | $ | (611,702) | | $ | (46,038) | | $ | 6,785 | | $ | 1,617,406 |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| | |
| | |
| | |
| 44,129 | |
| | |
| | |
| | |
| 44,129 |
| | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss, net of tax |
| | |
| | |
| | |
| | |
| (79,991) | |
| | |
| | |
| (79,991) |
| | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared: |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Common, $0.45 per share |
| | |
| | |
| | |
| (24,059) | |
| | |
| | |
| | |
| (24,059) |
| | | | | | | | | | | | | | | | | | | | | | | |
Common stock activity under employee stock plans |
| 71 | |
| 0 | |
| 47 | |
| | |
| | |
| | |
| | |
| 47 |
| | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation |
| | |
| | |
| 2,515 | |
| | |
| | |
| | |
| | |
| 2,515 |
| | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock purchased | | (100,000) | | | | | | | | | | | | | | | (5,108) | | | | | | (5,108) |
| | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock issued to benefit plans, net |
| (1,172) | |
| | |
| | | | | | | | |
| (52) | |
| 52 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2023 | | 53,426,989 | | $ | 54,364 | | $ | 1,057,433 | | $ | 1,179,196 | | $ | (691,693) | | $ | (51,198) | | $ | 6,837 | | $ | 1,554,939 |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2022 | | 53,734,027 | | $ | 54,185 | | $ | 1,046,303 | | $ | 1,098,664 | | $ | (518,727) | | $ | (26,369) | | $ | 7,640 | | $ | 1,661,696 |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | 48,691 | | | | | | | | | | | | 48,691 |
| | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | | | | | (227,654) | | | | | | | | | (227,654) |
| | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared: | | | | | | | | | | | | | | | | | | | | | | | |
Common, $0.44 per share | | | | | | | | | | | (23,714) | | | | | | | | | | | | (23,714) |
| | | | | | | | | | | | | | | | | | | | | | | |
Common stock activity under employee stock plans | | 2,892 | | | 3 | | | 284 | | | | | | | | | | | | | | | 287 |
| | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | | | | | | 1,857 | | | | | | | | | | | | | | | 1,857 |
| | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock purchased to benefit plans, net | | (903) | | | | | | | | | | | | | | | (57) | | | 57 | | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2022 |
| 53,736,016 | | $ | 54,188 | | $ | 1,048,444 | | $ | 1,123,641 | | $ | (746,381) | | $ | (26,426) | | $ | 7,697 | | $ | 1,461,163 |
See accompanying notes to consolidated financial statements (unaudited).
6
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
Nine months ended September 30, 2023 and 2022
(In Thousands, Except Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
|
| |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| | ||
| | Common Stock | | Additional | | | | | Other | | | | | Deferred | | | | | Common Stock | | Additional | | | | | Other | | | | | Deferred | | | | ||||||||||||
| | Shares | | Amount | | Paid-In | | Retained | | Comprehensive | | Treasury | | Compensation | | | | | Shares | | Amount | | Paid-In | | Retained | | Comprehensive | | Treasury | | Compensation | | | | ||||||||||||
|
| Outstanding |
| Issued |
| Capital |
| Earnings |
| Loss |
| Stock |
| Arrangements |
| Total |
| Outstanding |
| Issued |
| Capital |
| Earnings |
| Loss |
| Stock |
| Arrangements |
| Total | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 |
| 53,737,249 | | $ | 54,190 | | $ | 1,050,231 | | $ | 1,152,452 | | $ | (686,439) | | $ | (26,485) | | $ | 7,756 | | $ | 1,551,705 |
| 53,737,249 | | $ | 54,190 | | $ | 1,050,231 | | $ | 1,152,452 | | $ | (686,439) | | $ | (26,485) | | $ | 7,756 | | $ | 1,551,705 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| | |
| | |
| | |
| 5,798 | |
| | |
| | |
| | |
| 5,798 |
| | |
| | |
| | |
| 98,218 | |
| | |
| | |
| | |
| 98,218 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income, net of tax |
| | |
| | |
| | |
| | |
| 108,354 | |
| | |
| | |
| 108,354 | |||||||||||||||||||||||
Other comprehensive loss, net of tax |
| | |
| | |
| | |
| | |
| (5,254) | |
| | |
| | |
| (5,254) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared: |
| | |
| | |
| | |
| | |
|
| |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| |
| | |
| | |
| |
Common, $0.44 per share |
| | |
| | |
| | |
| (23,723) | |
|
| |
| | |
| | |
| (23,723) | |||||||||||||||||||||||
Common, $1.33 per share |
| | |
| | |
| | |
| (71,474) | |
| | |
| | |
| | |
| (71,474) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock activity under employee stock plans |
| 169,333 | |
| 170 | |
| 343 | |
| | |
|
| |
| | |
| | |
| 513 |
| 173,610 | |
| 174 | |
| 537 | |
| | |
| | |
| | |
| | |
| 711 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation |
| | |
| | |
| 2,272 | |
|
| |
|
| |
| | |
| | |
| 2,272 |
| | |
| | |
| 6,709 | |
| | |
| | |
| | |
| | |
| 6,709 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Distribution of stock under deferred compensation arrangements |
| 19,264 | |
| | |
| (44) | |
| | |
|
| |
| 1,126 | |
| (1,082) | |
| 0 |
| 19,264 | |
| | |
| (44) | |
| | |
| | |
| 1,126 | |
| (1,082) | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock purchased | | (200,000) | | | | | | | | | | | | | | | (10,906) | | | | | | (10,906) | | (500,000) | | | | | | | | | | | | | | | (25,676) | | | | | | (25,676) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock issued to benefit plans, net |
| (929) | |
| | |
| | | | | |
| | |
| (60) | |
| 60 | |
| 0 |
| (3,134) | |
| | |
| | | | | |
| | |
| (163) | |
| 163 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2023 |
| 53,724,917 | | $ | 54,360 | | $ | 1,052,802 | | $ | 1,134,527 | | $ | (578,085) | | $ | (36,325) | | $ | 6,734 | | $ | 1,634,013 | |||||||||||||||||||||||
Balance at September 30, 2023 |
| 53,426,989 | | $ | 54,364 | | $ | 1,057,433 | | $ | 1,179,196 | | $ | (691,693) | | $ | (51,198) | | $ | 6,837 | | $ | 1,554,939 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 |
| 53,878,047 | | $ | 54,092 | | $ | 1,041,304 | | $ | 1,058,286 | | $ | (50,627) | | $ | (10,610) | | $ | 8,362 | | $ | 2,100,807 |
| 53,878,047 | | $ | 54,092 | | $ | 1,041,304 | | $ | 1,058,286 | | $ | (50,627) | | $ | (10,610) | | $ | 8,362 | | $ | 2,100,807 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| | |
| | |
| | |
| 47,055 | |
| | |
| | |
| | |
| 47,055 |
| | |
| | |
| | |
| 135,551 | |
| | |
| | |
| | |
| 135,551 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss, net of tax |
| | |
| | |
| | |
| | |
| (271,367) | |
| | |
| | |
| (271,367) |
| | |
| | |
| | |
| | |
| (695,754) | |
| | |
| | |
| (695,754) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared: |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Common, $0.43 per share |
| | |
| | |
| | |
| (23,234) | |
| | |
| | |
| | |
| (23,234) | |||||||||||||||||||||||
Common, $1.30 per share |
| | |
| | |
| | |
| (70,196) | |
| | |
| | |
| | |
| (70,196) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock activity under employee stock plans |
| 71,214 | |
| 72 | |
| 413 | |
| | |
| | |
| | |
| | |
| 485 |
| 95,586 | |
| 96 | |
| 990 | |
| | |
| | |
| | |
| | |
| 1,086 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation |
| | |
| | |
| 1,886 | |
| | |
| | |
| | |
| | |
| 1,886 |
| | |
| | |
| 6,047 | |
| | |
| | |
| | |
| | |
| 6,047 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Distribution of stock under deferred compensation arrangements | | 14,914 | | | | | | 104 | | | | | | | | | 738 | | | (842) | | | 0 | | 14,934 | | | | | | 103 | | | | | | | | | 739 | | | (842) | | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock purchased | | (50,000) | | | | | | | | | | | | | | | (3,529) | | | | | | (3,529) | | (250,000) | | | | | | | | | | | | | | | (16,378) | | | | | | (16,378) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock issued to benefit plans, net |
| (813) | |
| | |
| | | | | | | | |
| (63) | |
| 63 | |
| 0 |
| (2,551) | |
| | |
| | | | | | | | |
| (177) | |
| 177 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2022 |
| 53,913,362 | | $ | 54,164 | | $ | 1,043,707 | | $ | 1,082,107 | | $ | (321,994) | | $ | (13,464) | | $ | 7,583 | | $ | 1,852,103 | |||||||||||||||||||||||
Balance at September 30, 2022 |
| 53,736,016 | | $ | 54,188 | | $ | 1,048,444 | | $ | 1,123,641 | | $ | (746,381) | | $ | (26,426) | | $ | 7,697 | | $ | 1,461,163 |
See accompanying notes to consolidated financial statements (unaudited).
67
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2023 |
| 2022 | ||
Operating activities: |
| |
|
| |
|
Net income | | $ | 5,798 | | $ | 47,055 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Depreciation | |
| 3,304 | |
| 3,690 |
Amortization of intangible assets | |
| 3,667 | |
| 3,732 |
Net amortization (accretion) on securities, loans and borrowings | |
| 508 | |
| (4,547) |
Stock-based compensation | |
| 2,272 | |
| 1,886 |
Gain on debt extinguishment | | | (242) | | | 0 |
Provision for credit losses | |
| 3,500 | |
| 906 |
Amortization of mortgage servicing rights | |
| 233 | |
| 109 |
Loss on sales of investment securities | | | 52,329 | | | 0 |
Unrealized gain on equity securities | | | 0 | | | (2) |
Income from bank-owned life insurance policies | |
| (587) | |
| (440) |
Net gain on sale of assets | |
| (399) | |
| (450) |
Change in other assets and liabilities | |
| 6,991 | |
| (1) |
Net cash provided by operating activities | |
| 77,374 | |
| 51,938 |
Investing activities: | |
|
| |
|
|
Proceeds from maturities, calls, and paydowns of available-for-sale investment securities | |
| 20,543 | |
| 49,667 |
Proceeds from maturities, calls, and paydowns of held-to-maturity investment securities | | | 10 | | | 0 |
Proceeds from maturities and redemptions of equity and other investment securities | |
| 32,148 | |
| 460 |
Proceeds from sales of available-for-sale investment securities | | | 733,789 | | | 0 |
Purchases of available-for-sale investment securities | |
| 0 | |
| (1,256,723) |
Purchases of held-to-maturity investment securities | | | (3,310) | | | 0 |
Purchases of equity and other securities | |
| (3,319) | |
| (37) |
Net increase in loans | |
| (179,292) | |
| (49,556) |
Cash paid for acquisitions, net of cash acquired of $0, and $0, respectively | |
| (2,061) | |
| (2,464) |
Proceeds from sales of premises and equipment, net | | | 1,634 | | | 368 |
Purchases of premises and equipment, net | |
| (4,070) | |
| (2,582) |
Real estate limited partnership investments | | | 0 | | | (247) |
Net cash provided by (used in) investing activities | |
| 596,072 | |
| (1,261,114) |
Financing activities: | |
|
| |
|
|
Net increase in deposits | |
| 98,364 | |
| 406,499 |
Net decrease in overnight borrowings | |
| (710,000) | |
| 0 |
Net decrease in securities sold under agreement to repurchase, short-term | | | (42,045) | | | (24,189) |
Net decrease in other Federal Home Loan Bank borrowings | | | (2,215) | | | (24) |
Redemption of subordinated notes payable | | | (3,000) | | | 0 |
Proceeds from the issuance of common stock | |
| 513 | |
| 485 |
Purchases of treasury stock | |
| (10,966) | |
| (3,592) |
Increase in deferred compensation arrangements | |
| 60 | |
| 63 |
Cash dividends paid | |
| (23,708) | |
| (23,235) |
Withholding taxes paid on share-based compensation | |
| (1,047) | |
| (969) |
Net cash (used in) provided by financing activities | |
| (694,044) | |
| 355,038 |
Change in cash and cash equivalents | |
| (20,598) | |
| (854,138) |
Cash and cash equivalents at beginning of period | |
| 209,896 | |
| 1,875,064 |
Cash and cash equivalents at end of period | | $ | 189,298 | | $ | 1,020,926 |
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 14,815 | | $ | 2,839 |
Cash paid for income taxes | |
| 1,065 | |
| 3,344 |
Supplemental disclosures of noncash financing and investing activities: | | | | | | |
Dividends declared and unpaid | |
| 23,778 | |
| 23,234 |
Transfers from loans to other real estate | |
| 18 | |
| 203 |
Transfers from premises and equipment, net to other assets | | | 1,443 | | | 0 |
Acquisitions: | | | | | | |
Fair value of assets acquired, excluding acquired cash and intangibles | |
| 32 | |
| 0 |
Fair value of liabilities assumed | |
| 9 | |
| 0 |
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
|
| 2023 |
| 2022 | ||
Operating activities: |
| |
|
| |
|
Net income | | $ | 98,218 | | $ | 135,551 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Depreciation | |
| 9,781 | |
| 10,956 |
Amortization of intangible assets | |
| 10,948 | |
| 11,420 |
Net amortization (accretion) on securities, loans and borrowings | |
| 3,675 | |
| (14,519) |
Stock-based compensation | |
| 6,709 | |
| 6,047 |
Gain on debt extinguishment | | | (242) | | | 0 |
Provision for credit losses | |
| 7,130 | |
| 12,005 |
Amortization of mortgage servicing rights | |
| 654 | |
| 554 |
Loss on sales of investment securities | | | 52,329 | | | 0 |
Unrealized loss on equity securities | | | 99 | | | 24 |
Income from bank-owned life insurance policies | |
| (1,762) | |
| (1,543) |
Net gain on sale of assets | |
| (1,067) | |
| (570) |
Change in other assets and liabilities | |
| (2,758) | |
| (16,889) |
Net cash provided by operating activities | |
| 183,714 | |
| 143,036 |
Investing activities: | |
|
| |
|
|
Proceeds from maturities, calls, and paydowns of available-for-sale investment securities | |
| 582,614 | |
| 210,152 |
Proceeds from maturities, calls, and paydowns of held-to-maturity investment securities | | | 72 | | | 0 |
Proceeds from maturities and redemptions of equity and other investment securities | |
| 20,960 | |
| 2,247 |
Proceeds from sales of available-for-sale investment securities | | | 733,789 | | | 0 |
Purchases of available-for-sale investment securities | |
| 0 | |
| (1,348,400) |
Purchases of held-to-maturity investment securities | | | (23,933) | | | 0 |
Purchases of equity and other securities | |
| (4,542) | |
| (6,108) |
Net increase in loans | |
| (660,031) | |
| (735,072) |
Cash (paid) received for acquisitions, net of cash acquired of $0 and $84,988, respectively | |
| (8,301) | |
| 345 |
Proceeds from sales of premises, equipment and other assets | | | 5,902 | | | 1,928 |
Purchases of premises and equipment | |
| (13,889) | |
| (10,014) |
Real estate limited partnership investments | | | 0 | | | (247) |
Net cash provided by (used in) investing activities | |
| 632,641 | |
| (1,885,169) |
Financing activities: | |
|
| |
|
|
Net increase in deposits | | | 18,480 | | | 52,858 |
Net (decrease) increase in overnight borrowings | |
| (768,400) | |
| 119,800 |
Net (decrease) increase in securities sold under agreement to repurchase, short-term | | | (16,400) | | | 28,052 |
Proceeds from other Federal Home Loan Bank borrowings | | | 300,000 | | | 0 |
Payments on and maturities of other Federal Home Loan Bank borrowings | | | (2,713) | | | (71) |
Payments of contingent consideration for acquisitions | | | (1,214) | | | 0 |
Redemption of subordinated notes payable | | | (3,000) | | | 0 |
Proceeds from issuance of common stock | |
| 711 | |
| 1,086 |
Purchases of treasury stock | |
| (25,839) | |
| (16,555) |
Increase in deferred compensation arrangements | |
| 163 | |
| 177 |
Cash dividends paid | |
| (71,048) | |
| (69,681) |
Withholding taxes paid on share-based compensation | |
| (1,184) | |
| (1,206) |
Net cash (used in) provided by financing activities | |
| (570,444) | |
| 114,460 |
Change in cash and cash equivalents | |
| 245,911 | |
| (1,627,673) |
Cash and cash equivalents at beginning of period | |
| 209,896 | |
| 1,875,064 |
Cash and cash equivalents at end of period | | $ | 455,807 | | $ | 247,391 |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 64,147 | | $ | 11,793 |
Cash paid for income taxes | |
| 29,198 | |
| 41,061 |
Supplemental disclosures of noncash financing and investing activities: | | | | | | |
Dividends declared and unpaid | |
| 24,189 | |
| 23,750 |
Transfers from loans to other real estate | |
| 232 | |
| 303 |
Transfers from premises and equipment, net to other assets | | | 1,948 | | | 5,113 |
Acquisitions: | | | | | | |
Fair value of assets acquired, excluding acquired cash and intangibles | |
| 243 | |
| 490,623 |
Fair value of liabilities assumed | |
| 18 | |
| 543,507 |
Contingent consideration in exchange for acquired assets | | | 1,450 | | | 0 |
See accompanying notes to consolidated financial statements (unaudited).
78
COMMUNITY BANK SYSTEM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31,SEPTEMBER 30, 2023
NOTE A: BASIS OF PRESENTATION
The interim financial data as of and for the three and nine months ended March 31,September 30, 2023 is unaudited; however, in the opinion of Community Bank System, Inc. (the “Company”), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results for the interim periods in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and Article 10 of Regulation S-X. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. The Company’s unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023.
NOTE B: ACQUISITIONS
Subsequent Period Acquisition
On May 1, 2023, the Company, through its subsidiary OneGroup NY, Inc. (“OneGroup”), completed the acquisition of certain assets of Hyde Park Insurance Services, Inc., an insurance agency headquartered in Tampa, Florida for $4.3 million in cash. The effects of the acquired assets will be included in the 2023 consolidated financial statements beginning in the second quarter of 2023.
Current and Prior Period Acquisitions
During the nine months ended September 30, 2023, the Company, through its subsidiaries OneGroup NY, Inc. (“OneGroup”) and OneGroup Wealth Partners, Inc. (“Wealth Partners”), completed the acquisition of certain assets of five financial services companies. The acquired companies provide insurance and wealth management services and are headquartered in New York, Pennsylvania, and Florida. Total aggregate consideration for these acquisitions was $7.9 million, including $6.5 million in cash and $1.4 million in contingent consideration arrangements. The contingent consideration arrangements are based on achieving certain levels of retained revenue over a period ranging from two to five years. The fair value of these arrangements has been recorded based on the assumption that retained revenue levels will meet or exceed the required threshold for the maximum contingent consideration payments. Aggregate assets acquired were $4.9 million, including $4.7 million of customer list intangible assets and the Company recorded goodwill of $3.0 million. The effects of the acquired assets have been included in the consolidated financial statements since the date of acquisition. Revenues and direct expenses included in the consolidated statements of income for the three and nine months ended September 30, 2023 were immaterial.
On March 1, 2023, the Company completed the acquisition of certain assets of Axiom Realty Group, which includes Axiom Capital Corp., Axiom Realty Management, LLC and Axiom Realty Advisors, LLC (collectively referred to as “Axiom”) for $1.8 million in cash. The Company recorded a $0.5$1.2 million customer list intangible and recognized $1.3$0.6 million of goodwill in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since that date. Revenues of approximately $0.1$0.3 million and $0.4 million and direct expenses of approximately $0.2$0.5 million and $1.2 million were included in the consolidated statementstatements of income for the three and nine months ended March 31, 2023.
On November 1, 2022, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets of JMD Associates, LLC (“JMD”), an insurance agency headquartered in Boca Raton, Florida. The Company paid $1.0 million in cash and recorded a $0.1 million intangible asset for a noncompete agreement, a $0.4 million customer list intangible and $0.5 million of goodwill in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since that date. Revenues of approximately $0.1 million and direct expenses of approximately $0.1 million were included in the consolidated statement of income for the three months ended March 31, 2023.September 30, 2023, respectively.
On May 13, 2022, the Company completed its acquisition of Elmira Savings Bank (“Elmira”), a New York State chartered savings bank headquartered in Elmira, New York, for $82.2 million in cash. The acquisition enhanced the Company’s presence in five counties in New York’s Southern Tier and Finger Lakes regions. In connection with the acquisition, the Company acquired approximately $583.7$583.6 million of identifiable assets, including $437.0$436.8 million of loans, $11.3 million of investment securities, and $8.0 million of core deposit intangibles, as well as $522.3 million of deposits. Goodwill of $41.9$42.1 million was recognized as a result of the merger. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. Revenues of approximately $4.7$3.9 million and $11.0 million and direct expenses of approximately $1.1 million and $3.5 million from the Elmira branch network, which may not include certain shared expenses, were included in the consolidated statementstatements of income for the three and nine months ended March 31, 2023.September 30, 2023, respectively. Revenues of approximately $4.8 million and $7.2 million and direct expenses of approximately $1.2 million and $1.8 million from the Elmira branch network were included in the consolidated statements of income for the three and nine months ended September 30, 2022, respectively. The Company incurred certain transaction-related costs in 2022 in connection with the Elmira acquisition.
On January 1,9
During 2022, the Company, through its subsidiary OneGroup, completed acquisitions of certain assets of threefour insurance agencies for an aggregate amount of $2.5$3.5 million in cash. The Company recorded a $2.5$2.9 million customer list intangible asset and a $0.1 million intangible asset for a noncompete agreement and recognized $0.5 million of goodwill in conjunction with the acquisitions. The effects of the acquired assets have been included in the consolidated financial statements since that date. Includedthe date of acquisition. Revenues and direct expenses included in the consolidated statements of income for the three and nine months ended March 31,September 30, 2023 and 2022 are revenues of approximately $0.2 million and $0.3 million, respectively, and direct expenses of approximately $0.1 million in each of the three months ended March 31, 2023 and 2022.were immaterial.
The assets and liabilities assumed in the acquisitions were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition, and were subject to adjustment based on updated information not available at the time of the acquisitions. Through the first quarternine months of 2023, the carrying amount of loans, accrued interest and fees receivable, other assets and other liabilities associated with the Elmira acquisition was adjusted upon receipt of new information as a result of adjustments to employee benefits accruals and deferred income taxes.information. The adjustments resulted in a net decrease to goodwill of $0.3$0.1 million.
8
Table During the nine months ended September 30, 2023, the carrying amount of Contentsother intangibles associated with the Axiom acquisition was adjusted upon receipt of new information. The adjustment resulted in a net decrease to goodwill of $0.6 million.
The Elmira and Axiom acquisitions generally expanded the Company’s banking geographic presence in New York. The OneGroup and Wealth Partners acquisitions generally expanded the Company’s nonbankinginsurance and wealth management presence in New York, Florida and Florida.Pennsylvania. Management expects that the Company will benefit from greater geographic diversity and the advantages of other synergistic business development opportunities.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed after considering the measurement period adjustments described above:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2023 | | 2022 | ||||||||||||||||||||||||||||
(000s omitted) |
| Axiom | | Other(1) | | Total |
| Elmira |
| Other(2) |
| Total |
| Axiom |
| Other(1) |
| Total |
| Elmira |
| Other(2) |
| Total | ||||||||||||
Consideration: | | | | | | | | | | | |
|
| |
|
| |
| | | | | | | | | | | |
|
| |
|
| |
|
Cash | | $ | 1,819 | | $ | 242 | | $ | 2,061 | | $ | 82,179 | | $ | 3,477 | | $ | 85,656 | | $ | 1,819 | | $ | 6,482 | | $ | 8,301 | | $ | 82,179 | | $ | 3,477 | | $ | 85,656 |
Contingent consideration | | | 0 | | | 1,450 | | | 1,450 | | | 0 | | | 0 | | | 0 | ||||||||||||||||||
Total net consideration | | | 1,819 | | | 7,932 | | | 9,751 | | | 82,179 | | | 3,477 | | | 85,656 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | | | | | | | |
| | |
| | |
| | | | | | | | | | | |
| | |
| | |
| |
Cash and cash equivalents | | | 0 | | | 0 | | | 0 | |
| 84,988 | |
| 0 | |
| 84,988 | | | 0 | | | 0 | | | 0 | |
| 84,988 | |
| 0 | |
| 84,988 |
Investment securities | | | 0 | | | 0 | | | 0 | |
| 11,305 | |
| 0 | |
| 11,305 | | | 0 | | | 0 | | | 0 | |
| 11,305 | |
| 0 | |
| 11,305 |
Loans, net of allowance for credit losses on PCD loans | | | 0 | | | 0 | | | 0 | |
| 436,954 | |
| 0 | |
| 436,954 | | | 0 | | | 0 | | | 0 | |
| 436,796 | |
| 0 | |
| 436,796 |
Premises and equipment, net | | | 25 | | | 5 | | | 30 | |
| 11,303 | |
| 14 | |
| 11,317 | | | 25 | | | 41 | | | 66 | |
| 11,303 | |
| 14 | |
| 11,317 |
Accrued interest and fees receivable | | | 0 | | | 0 | | | 0 | |
| 882 | |
| 0 | |
| 882 | | | 0 | | | 0 | | | 0 | |
| 882 | |
| 0 | |
| 882 |
Other assets | | | 2 | | | 0 | | | 2 | |
| 30,337 | |
| 0 | |
| 30,337 | | | 2 | | | 175 | | | 177 | |
| 30,337 | |
| 0 | |
| 30,337 |
Core deposit intangibles | | | 0 | | | 0 | | | 0 | |
| 7,970 | |
| 0 | |
| 7,970 | | | 0 | | | 0 | | | 0 | |
| 7,970 | |
| 0 | |
| 7,970 |
Other intangibles | | | 531 | | | 118 | | | 649 | |
| 0 | |
| 3,014 | |
| 3,014 | | | 1,176 | | | 4,714 | | | 5,890 | |
| 0 | |
| 3,014 | |
| 3,014 |
Deposits | | | 0 | | | 0 | | | 0 | |
| (522,295) | |
| 0 | |
| (522,295) | | | 0 | | | 0 | | | 0 | |
| (522,295) | |
| 0 | |
| (522,295) |
Other liabilities | | | (9) | | | 0 | | | (9) | |
| (3,575) | |
| 0 | |
| (3,575) | | | (9) | | | (9) | | | (18) | |
| (3,596) | |
| (34) | |
| (3,630) |
Other Federal Home Loan Bank borrowings | | | 0 | | | 0 | | | 0 | |
| (17,616) | |
| 0 | |
| (17,616) | | | 0 | | | 0 | | | 0 | |
| (17,616) | |
| 0 | |
| (17,616) |
Total identifiable assets, net | | | 549 | | | 123 | | | 672 | |
| 40,253 | |
| 3,028 | |
| 43,281 | | | 1,194 | | | 4,921 | | | 6,115 | |
| 40,074 | |
| 2,994 | |
| 43,068 |
Goodwill | | $ | 1,270 | | $ | 119 | | $ | 1,389 | | $ | 41,926 | | $ | 449 | | $ | 42,375 | | $ | 625 | | $ | 3,011 | | $ | 3,636 | | $ | 42,105 | | $ | 483 | | $ | 42,588 |
(1) | Includes amounts for four OneGroup acquisitions and one Wealth Partners acquisition completed in 2023. |
(2) | Includes amounts for |
The Company acquired certain loans from Elmira for which there was not evidence of a more-than-insignificant deterioration in credit quality since origination (non-PCD(non-Purchased Credit Deteriorated, or “PCD”, loans) with an unpaid principal balance of $455.7 million at the acquisition date. Total fair value adjustments for non-PCD loans resulted in a net discount of $20.8 million.
10
The Company acquired certain loans from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination (PCD loans). There were no investment securities acquired from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination. The carrying amount of those loans is as follows at the date of acquisition:
| | | |
(000s omitted) |
| PCD Loans | |
Par value of PCD loans at acquisition | | $ | 2,184 |
Allowance for credit losses at acquisition | |
| (71) |
Non-credit discount at acquisition | |
| (81) |
Fair value of PCD loans at acquisition | | $ | 2,032 |
The fair value of checking, savings and money market deposit accounts acquired were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates.
Borrowings assumed with the Elmira acquisition included Federal Home Loan Bank of New York (“FHLB”) borrowings with a fair value of $17.6 million, with maturity dates ranging from January 2023 through March 2027 and a weighted average interest rate of 2.48%.
9
The core deposit intangibles related to the Elmira acquisition and other intangibles related to three of the OneGroup acquisitions completed in 2022, the OneGroup acquisitionand Wealth Partners acquisitions completed in 2023, and the Axiom acquisition are being amortized using an accelerated method over an estimated useful life of eight years. The other intangibles associated with the fourth remaining OneGroup acquisition completed in 2022 are being amortized using an accelerated method over their estimated useful life of ten years. The goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira and Axiom acquisitions and the All Other segment for the OneGroup acquisitionand Wealth Partners acquisitions completed in 2023 and the JMD acquisition.2022. Goodwill arising from the Elmira acquisition is not deductible for tax purposes. Goodwill arising from the Axiom acquisition and the OneGroup acquisitionand Wealth Partners acquisitions completed in 2023 and the JMD acquisition2022 is deductible for tax purposes.
Direct costs related to the acquisitions were expensed as incurred. Merger and acquisition integration-related expenses were $0.1immaterial for the three and nine months ended September 30, 2023. Merger and acquisition integration-related expenses were $0.4 million and $0.3$4.7 million during the three and nine months ended March 31, 2023 andSeptember 30, 2022, respectively, andrespectively. These expenses have been separately stated in the consolidated statements of income.
Supplemental Pro Forma Financial Information
The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the three and nine months ended September 30, 2022. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the year presented, nor is it indicative of the Company’s future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of the acquisition.
The pro forma information set forth below reflects the historical results of Elmira combined with the Company’s consolidated statements of income with adjustments related to (a) certain purchase accounting fair value adjustments and (b) amortization of core deposit intangibles. Acquisition-related expenses totaling $0.4 million and $4.7 million for the three and nine months ended September 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021. The effects of the Elmira acquisition are reflected in all periods in 2023.
| | | | | | |
|
| Pro Forma (Unaudited) | ||||
| | Three Months Ended | | Nine Months Ended | ||
(000’s omitted) |
| September 30, 2022 |
| September 30, 2022 | ||
Total revenue, net of interest expense | | $ | 175,595 | | $ | 512,687 |
Net income | |
| 49,016 | |
| 141,138 |
11
NOTE C: SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as presented on pages 76 through 87 of the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023 except as noted below.
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31,September 30, 2023, $31.7$35.3 million of accounts receivable, including $9.2$8.1 million of unbilled fee revenue and $1.8$0.9 million of unearned revenue, was recorded in the consolidated statements of condition. As of December 31, 2022, $33.3 million of accounts receivable, including $8.8 million of unbilled fee revenue, and $1.1 million of unearned revenue, was recorded in the consolidated statements of condition.
Loan Modifications
The Company, in certain situations, will modify a loan with a borrower experiencing financial difficulty that results in a direct change in the timing or amount of contractual cash flows. Applicable modifications include, but are not limited to, principal forgiveness, interest rate reduction, other-than-insignificant payment delay, term extension (other than administrative) or a combination thereof. Principal forgiveness is defined as any contractual reduction in the amount of principal due without receiving payment or assets. Interest rate reduction is defined as the change resultsresulting in the borrower receiving a below market interest rate. A delay in payment that is other-than-insignificant is determined by considering factors including the amount of the restructured payments relative to the unpaid principal or collateral value of the loan, as well as the timing of the restructured payment relative to the frequency of payments due under the debt, the debt’s original contract maturity and the debt’s original expected duration. Generally, a delay in payment greater than 90 days in the last twelve months would be considered other-than-insignificant. The Company considers several factors to assess whether a borrower is experiencing financial difficulty, including, but not limited to, payment default or expected payment default, bankruptcy of the borrower, substantial doubt whether the borrower will continue as a going concern and estimates or projections of the borrower’s financial condition that indicate that the borrower will be unable to service the loan in accordance with the contractual provisions of the existing agreement. Following the adoption of ASU 2022-02 on January 1, 2023, the Company has established a policy to identify and disclose information required by FASB ASC 310-10-50 regarding modifications made to borrowers experiencing financial difficulty.
Reclassifications
Certain reclassifications have been made to prior period balances to conform to the current period’s presentation.
10
Recently Adopted Accounting Pronouncements
In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross charge-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. The Company adopted this guidance on January 1, 2023 on a prospective basis and while it resulted in expanded disclosures, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
12
NOTE D: INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities as of March 31,September 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| | | | | Gross | | Gross | | | | | | | | Gross | | Gross | | | | | | | | Gross | | Gross | | | | | | | | Gross | | Gross | | | | ||||||||
| | Amortized | | Unrealized | | Unrealized | | Fair | | Amortized | | Unrealized | | Unrealized | | Fair | | Amortized | | Unrealized | | Unrealized | | Fair | | Amortized | | Unrealized | | Unrealized | | Fair | ||||||||||||||||
(000’s omitted) |
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||||||||||
Available-for-Sale Portfolio: | | | |
| |
|
| |
| | | | | | |
| |
|
| |
| | | | | | |
| |
|
| |
| | | | | | |
| |
|
| |
| | | |
U.S. Treasury and agency securities | | $ | 2,876,765 | | $ | 0 | | $ | 299,774 | | $ | 2,576,991 | | $ | 3,660,546 | | $ | 0 | | $ | 417,009 | | $ | 3,243,537 | | $ | 2,378,607 | | $ | 0 | | $ | 399,168 | | $ | 1,979,439 | | $ | 3,660,546 | | $ | 0 | | $ | 417,009 | | $ | 3,243,537 |
Obligations of state and political subdivisions | |
| 541,118 | |
| 1,746 | |
| 32,995 | |
| 509,869 | |
| 549,118 | |
| 506 | |
| 45,327 | |
| 504,297 | |
| 506,838 | |
| 20 | |
| 72,393 | |
| 434,465 | |
| 549,118 | |
| 506 | |
| 45,327 | |
| 504,297 |
Government agency mortgage-backed securities | |
| 433,829 | |
| 105 | |
| 53,476 | |
| 380,458 | |
| 444,689 | |
| 58 | |
| 60,114 | |
| 384,633 | |
| 411,083 | |
| 6 | |
| 74,018 | |
| 337,071 | |
| 444,689 | |
| 58 | |
| 60,114 | |
| 384,633 |
Corporate debt securities | |
| 8,000 | |
| 0 | |
| 810 | |
| 7,190 | |
| 8,000 | |
| 0 | |
| 886 | |
| 7,114 | |
| 8,000 | |
| 0 | |
| 826 | |
| 7,174 | |
| 8,000 | |
| 0 | |
| 886 | |
| 7,114 |
Government agency collateralized mortgage obligations | |
| 12,169 | |
| 1 | |
| 685 | |
| 11,485 | |
| 13,121 | |
| 1 | |
| 852 | |
| 12,270 | |
| 10,287 | |
| 0 | |
| 800 | |
| 9,487 | |
| 13,121 | |
| 1 | |
| 852 | |
| 12,270 |
Total available-for-sale portfolio | | $ | 3,871,881 | | $ | 1,852 | | $ | 387,740 | | $ | 3,485,993 | | $ | 4,675,474 | | $ | 565 | | $ | 524,188 | | $ | 4,151,851 | | $ | 3,314,815 | | $ | 26 | | $ | 547,205 | | $ | 2,767,636 | | $ | 4,675,474 | | $ | 565 | | $ | 524,188 | | $ | 4,151,851 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held-to-Maturity Portfolio: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury and agency securities | | $ | 1,086,936 | | $ | 78 | | $ | 6,983 | | $ | 1,080,031 | | $ | 1,079,695 | | $ | 0 | | $ | 44,900 | | $ | 1,034,795 | | $ | 1,101,679 | | $ | 0 | | $ | 134,091 | | $ | 967,588 | | $ | 1,079,695 | | $ | 0 | | $ | 44,900 | | $ | 1,034,795 |
Government agency mortgage-backed securities | | | 3,299 | | | 15 | | | 15 | | | 3,299 | | | 0 | | | 0 | | | 0 | | | 0 | | | 23,861 | | | 0 | | | 789 | | | 23,072 | | | 0 | | | 0 | | | 0 | | | 0 |
Total held-to-maturity portfolio | | $ | 1,090,235 | | $ | 93 | | $ | 6,998 | | $ | 1,083,330 | | $ | 1,079,695 | | $ | 0 | | $ | 44,900 | | $ | 1,034,795 | | $ | 1,125,540 | | $ | 0 | | $ | 134,880 | | $ | 990,660 | | $ | 1,079,695 | | $ | 0 | | $ | 44,900 | | $ | 1,034,795 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity and Other Securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Equity securities, at fair value | | $ | 251 | | $ | 168 | | $ | 0 | | $ | 419 | | $ | 251 | | $ | 168 | | $ | 0 | | $ | 419 | | $ | 251 | | $ | 69 | | $ | 0 | | $ | 320 | | $ | 251 | | $ | 168 | | $ | 0 | | $ | 419 |
Federal Home Loan Bank common stock | |
| 15,342 | |
| 0 | |
| 0 | |
| 15,342 | |
| 47,497 | |
| 0 | |
| 0 | |
| 47,497 | |
| 26,524 | |
| 0 | |
| 0 | |
| 26,524 | |
| 47,497 | |
| 0 | |
| 0 | |
| 47,497 |
Federal Reserve Bank common stock | |
| 33,568 | |
| 0 | |
| 0 | |
| 33,568 | |
| 31,144 | |
| 0 | |
| 0 | |
| 31,144 | |
| 33,568 | |
| 0 | |
| 0 | |
| 33,568 | |
| 31,144 | |
| 0 | |
| 0 | |
| 31,144 |
Other equity securities, at adjusted cost | |
| 4,434 | |
| 750 | |
| 0 | |
| 5,184 | |
| 3,532 | |
| 750 | |
| 0 | |
| 4,282 | |
| 5,663 | |
| 750 | |
| 0 | |
| 6,413 | |
| 3,532 | |
| 750 | |
| 0 | |
| 4,282 |
Total equity and other securities | | $ | 53,595 | | $ | 918 | | $ | 0 | | $ | 54,513 | | $ | 82,424 | | $ | 918 | | $ | 0 | | $ | 83,342 | | $ | 66,006 | | $ | 819 | | $ | 0 | | $ | 66,825 | | $ | 82,424 | | $ | 918 | | $ | 0 | | $ | 83,342 |
Included in the Company’s investment securities portfolio is Federal Reserve Bank (“FRB”) common stock with a carrying value of $33.6 million and $31.1 million at September 30, 2023 and December 31, 2022, respectively. The investment in FRB stock represents approximately half of the total required subscription, and the remaining half is unpaid and remains subject to call by the FRB.
1113
A summary of investment securities that have been in a continuous unrealized loss position is as follows:
As of March 31,September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Less than 12 Months |
| 12 Months or Longer |
| Total |
| Less than 12 Months |
| 12 Months or Longer |
| Total | ||||||||||||||||||||||||||||||||||||
| | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | ||||||
| | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | ||||||||||||
(000’s omitted) |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses | ||||||||||||
Available-for-Sale Portfolio: | |
| | |
| | |
| |
| | |
| | |
| |
| | | | | |
| |
| | |
| | |
| |
| | |
| | |
| |
| | | | | |
|
U.S. Treasury and agency securities | | 14 | | $ | 447,018 | | $ | 1,900 | | 69 | | $ | 2,129,973 | | $ | 297,874 | | 83 | | $ | 2,576,991 | | $ | 299,774 | | 0 | | $ | 0 | | $ | 0 | | 64 | | $ | 1,979,439 | | $ | 399,168 | | 64 | | $ | 1,979,439 | | $ | 399,168 |
Obligations of state and political subdivisions | | 205 | |
| 105,503 | |
| 1,447 | | 330 | |
| 236,260 | |
| 31,548 | | 535 | |
| 341,763 | |
| 32,995 | | 285 | |
| 165,835 | |
| 12,417 | | 434 | |
| 263,067 | |
| 59,976 | | 719 | |
| 428,902 | |
| 72,393 |
Government agency mortgage-backed securities | | 207 | |
| 33,650 | |
| 1,264 | | 544 | |
| 336,011 | |
| 52,212 | | 751 | |
| 369,661 | |
| 53,476 | | 65 | |
| 11,134 | |
| 539 | | 727 | |
| 325,079 | |
| 73,479 | | 792 | |
| 336,213 | |
| 74,018 |
Corporate debt securities | | 2 | | | 7,190 | | | 810 | | 0 | | | 0 | | | 0 | | 2 | | | 7,190 | | | 810 | | 0 | | | 0 | | | 0 | | 2 | | | 7,174 | | | 826 | | 2 | | | 7,174 | | | 826 |
Government agency collateralized mortgage obligations | | 8 | |
| 750 | |
| 17 | | 35 | |
| 10,710 | |
| 668 | | 43 | |
| 11,460 | |
| 685 | | 0 | |
| 0 | |
| 0 | | 40 | |
| 9,467 | |
| 800 | | 40 | |
| 9,467 | |
| 800 |
Total available-for-sale investment portfolio | | 436 | | $ | 594,111 | | $ | 5,438 | | 978 | | $ | 2,712,954 | | $ | 382,302 | | 1,414 | | $ | 3,307,065 | | $ | 387,740 | | 350 | | $ | 176,969 | | $ | 12,956 | | 1,267 | | $ | 2,584,226 | | $ | 534,249 | | 1,617 | | $ | 2,761,195 | | $ | 547,205 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held-to-Maturity Portfolio: |
| | |
|
| |
|
|
| | |
|
| |
|
|
| | |
|
| |
| |
| | |
|
| |
|
|
| | |
|
| |
|
|
| | |
|
| |
| |
U.S. Treasury and agency securities | | 21 | | $ | 1,043,209 | | $ | 6,983 | | 0 | | $ | 0 | | $ | 0 | | 21 | | $ | 1,043,209 | | $ | 6,983 | | 23 | | $ | 967,588 | | $ | 134,091 | | 0 | | $ | 0 | | $ | 0 | | 23 | | $ | 967,588 | | $ | 134,091 |
Government agency mortgage-backed securities |
| 1 | | | 1,423 | | | 15 |
| 0 | | | 0 | | | 0 |
| 1 | | | 1,423 | | | 15 |
| 16 | | | 23,072 | | | 789 |
| 0 | | | 0 | | | 0 |
| 16 | | | 23,072 | | | 789 |
Total held-to-maturity portfolio |
| 22 | | $ | 1,044,632 | | $ | 6,998 |
| 0 | | $ | 0 | | $ | 0 |
| 22 | | $ | 1,044,632 | | $ | 6,998 |
| 39 | | $ | 990,660 | | $ | 134,880 |
| 0 | | $ | 0 | | $ | 0 |
| 39 | | $ | 990,660 | | $ | 134,880 |
As of December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Less than 12 Months |
| 12 Months or Longer |
| Total |
| Less than 12 Months |
| 12 Months or Longer |
| Total | ||||||||||||||||||||||||||||||||||||
| | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | |||||||
| | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | | | | Fair | | Unrealized | ||||||||||||
(000’s omitted) |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses |
| # |
| Value |
| Losses | ||||||||||||
Available-for-Sale Portfolio: | |
| |
| | |
| |
| | |
| | |
| |
| | |
| | |
| |
| | |
| | |
| |
| | |
| | |
| |
| | |
| | |
| |
U.S. Treasury and agency securities | | 41 | | $ | 1,384,075 | | $ | 132,511 | | 61 | | $ | 1,859,462 | | $ | 284,498 | | 102 | | $ | 3,243,537 | | $ | 417,009 | | 41 | | $ | 1,384,075 | | $ | 132,511 | | 61 | | $ | 1,859,462 | | $ | 284,498 | | 102 | | $ | 3,243,537 | | $ | 417,009 |
Obligations of state and political subdivisions | | 582 | |
| 370,524 | |
| 35,488 | | 76 | |
| 47,923 | |
| 9,839 | | 658 | |
| 418,447 | |
| 45,327 | | 582 | |
| 370,524 | |
| 35,488 | | 76 | |
| 47,923 | |
| 9,839 | | 658 | |
| 418,447 | |
| 45,327 |
Government agency mortgage-backed securities | | 497 | |
| 190,727 | |
| 19,508 | | 274 | |
| 189,919 | |
| 40,606 | | 771 | |
| 380,646 | |
| 60,114 | | 497 | |
| 190,727 | |
| 19,508 | | 274 | |
| 189,919 | |
| 40,606 | | 771 | |
| 380,646 | |
| 60,114 |
Corporate debt securities | | 0 | | 0 | | | 0 | | 2 | | | 7,114 | | | 886 | | 2 | | | 7,114 | | | 886 | | 0 | | | 0 | | | 0 | | 2 | | | 7,114 | | | 886 | | 2 | | | 7,114 | | | 886 | |
Government agency collateralized mortgage obligations | | 29 | |
| 9,968 | |
| 600 | | 17 | |
| 2,274 | |
| 252 | | 46 | |
| 12,242 | |
| 852 | | 29 | |
| 9,968 | |
| 600 | | 17 | |
| 2,274 | |
| 252 | | 46 | |
| 12,242 | |
| 852 |
Total available-for-sale investment portfolio | | 1,149 | | $ | 1,955,294 | | $ | 188,107 | | 430 | | $ | 2,106,692 | | $ | 336,081 | | 1,579 | | $ | 4,061,986 | | $ | 524,188 | | 1,149 | | $ | 1,955,294 | | $ | 188,107 | | 430 | | $ | 2,106,692 | | $ | 336,081 | | 1,579 | | $ | 4,061,986 | | $ | 524,188 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held-to-Maturity Portfolio: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S Treasury and agency securities | | 23 | | $ | 1,034,795 | | $ | 44,900 | | 0 | | $ | 0 | | $ | 0 | | 23 | | $ | 1,034,795 | | $ | 44,900 | ||||||||||||||||||||||||
U.S. Treasury and agency securities | | 23 | | $ | 1,034,795 | | $ | 44,900 | | 0 | | $ | 0 | | $ | 0 | | 23 | | $ | 1,034,795 | | $ | 44,900 | ||||||||||||||||||||||||
Total held-to-maturity portfolio | | 23 | | $ | 1,034,795 | | $ | 44,900 | | 0 | | $ | 0 | | $ | 0 | | 23 | | $ | 1,034,795 | | $ | 44,900 | | 23 | | $ | 1,034,795 | | $ | 44,900 | | 0 | | $ | 0 | | $ | 0 | | 23 | | $ | 1,034,795 | | $ | 44,900 |
1214
The unrealized losses reported pertaining to available-for-sale securities issued by the U.S. government and its sponsored entities include treasuries, agencies, and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, which are currently rated AAA by Moody’s Investor Services, AA+ by Standard & Poor’s and are guaranteed by the U.S. government. The majority of the obligations of state and political subdivisions carry a credit rating of A or better. Additionally, a portion of the obligations of state and political subdivisions carry a secondary level of credit enhancement. The Company holds two corporate debt securities in an unrealized loss position and, based on an analysis done by the Company, the issuers of the securities show a low risk of default. Timely principal and interest payments continue to be made on the securities. The unrealized losses in the portfolios are primarily attributable to changes in interest rates. As such, management does not believe any individual unrealized loss as of March 31,September 30, 2023 represents credit losses and no unrealized losses have been recognized in the provision for credit losses. Accordingly, there is no allowance for credit losses on the Company’s available-for-sale investment portfolio as of March 31,September 30, 2023. Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $12.3$11.8 million at March 31,September 30, 2023 and is excluded from the estimate of credit losses.
Securities classified as held-to-maturity are included under the CECL methodology. Calculation of expected credit loss under CECL is done on a collective (“pooled”) basis, with assets grouped when similar risk characteristics exist. The Company notes that at March 31,September 30, 2023 all securities in the held-to-maturity classification are U.S. Treasury securities and government agency mortgage-backed securities; therefore, they share the same risk characteristics and can be evaluated on a collective basis. The expected credit loss on these securities is evaluated based on historical credit losses of this security type and the expected possibility of default in the future, and these securities are guaranteed by the U.S. government. U.S. Treasury securities and government agency mortgage-backed securities often receive the highest credit rating by rating agencies and the Company has concluded that the possibility of default is considered remote. TheAt September 30, 2023, the U.S. Treasury securities and government agency mortgage-backed securities held by the Company in the held-to-maturity category carry an AAA rating from Moody’s Investor Services and an AA+ rating from Standard & Poor’s, AaaPoor’s. On August 1, 2023, Fitch downgraded the U.S. government’s long term rating from Moody’s Investor Services, and AAA from Fitch.to AA+. The credit rating downgrade does not impact the Company’s conclusion regarding the credit risk of U.S. government debt securities held in its investment portfolio. The Company concludes that the long history with no credit losses for these securities (adjusted for current conditions and reasonable and supportable forecasts) indicates an expectation that nonpayment of the amortized cost basis is zero. Management has concluded that therethe prepayment risk associated with these securities is no prepayment riskinsignificant and it is expected to recover the recorded investment. Accordingly, there is no allowance for credit losses on the Company’s held-to-maturity debt portfolio as of March 31,September 30, 2023. Accrued interest receivable on held-to-maturity debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $2.8$2.9 million at March 31,September 30, 2023 and is excluded from the estimate of credit losses. The Company has the intent and ability to hold the securities to maturity.
The amortized cost and estimated fair value of debt securities at March 31,September 30, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, including government agency mortgage-backed securities and government agency collateralized mortgage obligations, are shown separately.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Held-to-Maturity | | Available-for-Sale |
| Held-to-Maturity | | Available-for-Sale | ||||||||||||||||
| | Amortized | | Fair | | Amortized | | Fair | | Amortized | | Fair | | Amortized | | Fair | ||||||||
(000’s omitted) |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value | ||||||||
Due in one year or less | | $ | 0 | | $ | 0 | | $ | 522,140 | | $ | 519,910 | | $ | 0 | | $ | 0 | | $ | 17,031 | | $ | 16,799 |
Due after one through five years | |
| 0 | |
| 0 | | | 942,103 | | | 862,807 | |
| 0 | |
| 0 | | | 1,473,904 | | | 1,295,411 |
Due after five years through ten years | |
| 543,031 | |
| 541,541 | | | 1,251,796 | | | 1,127,354 | |
| 549,555 | |
| 506,275 | | | 685,913 | | | 587,185 |
Due after ten years | |
| 543,905 | |
| 538,490 | | | 709,844 | | | 583,979 | |
| 552,124 | |
| 461,313 | | | 716,597 | | | 521,683 |
Subtotal | |
| 1,086,936 | |
| 1,080,031 | | | 3,425,883 | | | 3,094,050 | |
| 1,101,679 | |
| 967,588 | | | 2,893,445 | | | 2,421,078 |
Government agency mortgage-backed securities | |
| 3,299 | |
| 3,299 | | | 433,829 | | | 380,458 | |
| 23,861 | |
| 23,072 | | | 411,083 | | | 337,071 |
Government agency collateralized mortgage obligations | |
| 0 | |
| 0 | | | 12,169 | | | 11,485 | |
| 0 | |
| 0 | | | 10,287 | | | 9,487 |
Total | | $ | 1,090,235 | | $ | 1,083,330 | | $ | 3,871,881 | | $ | 3,485,993 | | $ | 1,125,540 | | $ | 990,660 | | $ | 3,314,815 | | $ | 2,767,636 |
Investment securities with a fair value of $3.75$2.19 billion and $2.18 billion at March 31,September 30, 2023 and December 31, 2022, respectively, were pledged to collateralize certain deposits, borrowings and potential future borrowings. Securities pledged to collateralize certain deposits and borrowings included $640.4$542.8 million and $466.9 million of U.S. Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at March 31,September 30, 2023 and December 31, 2022, respectively. All securities sold under agreement to repurchase as of March 31,September 30, 2023 and December 31, 2022 have an overnight and continuous maturity.
15
During the first quarter of 2023, the Company sold $786.1 million in book value of available-for-sale U.S. Treasury and agency securities, recognizing $52.3 million of gross realized losses. The sales were completed in January and February 2023 as part of a strategic balance sheet repositioning and were unrelated to the negative developments in the banking industry that occurred in March 2023. The proceeds from these sales of $733.8 million were redeployed entirely towards paying off existing overnight borrowings.
13
NOTE E: LOANS AND ALLOWANCE FOR CREDIT LOSSES
The segments of the Company’s loan portfolio are summarized as follows:
| | | | | | | | | | | | |
| | March 31, | | December 31, | | September 30, | | December 31, | ||||
(000’s omitted) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Business lending | | $ | 3,747,942 | | $ | 3,645,665 | | $ | 3,914,935 | | $ | 3,645,665 |
Consumer mortgage | |
| 3,019,718 | |
| 3,012,475 | |
| 3,196,764 | |
| 3,012,475 |
Consumer indirect | |
| 1,605,659 | |
| 1,539,653 | |
| 1,708,302 | |
| 1,539,653 |
Consumer direct | |
| 176,989 | |
| 177,605 | |
| 185,301 | |
| 177,605 |
Home equity | |
| 432,027 | |
| 433,996 | |
| 444,764 | |
| 433,996 |
Gross loans, including deferred origination costs | |
| 8,982,335 | |
| 8,809,394 | |
| 9,450,066 | |
| 8,809,394 |
Allowance for credit losses | |
| (63,170) | |
| (61,059) | |
| (64,945) | |
| (61,059) |
Loans, net of allowance for credit losses | | $ | 8,919,165 | | $ | 8,748,335 | | $ | 9,385,121 | | $ | 8,748,335 |
The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of March 31,September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due | | 90+ Days Past | | | | | | | | | | | | | | Past Due | | 90+ Days Past | | | | | | | | | | | | | ||||
| | 30 – 89 | | Due and | | | | | Total | | | | | | | | 30 – 89 | | Due and | | | | | Total | | | | | | | ||||||
(000’s omitted) |
| Days |
| Still Accruing |
| Nonaccrual |
| Past Due |
| Current |
| Total Loans |
| Days |
| Still Accruing |
| Nonaccrual |
| Past Due |
| Current |
| Total Loans | ||||||||||||
Business lending | | $ | 5,514 | | $ | 0 | | $ | 4,392 | | $ | 9,906 | | $ | 3,738,036 | | $ | 3,747,942 | | $ | 13,545 | | $ | 0 | | $ | 5,638 | | $ | 19,183 | | $ | 3,895,752 | | $ | 3,914,935 |
Consumer mortgage | |
| 11,767 | |
| 3,509 | |
| 23,295 | |
| 38,571 | |
| 2,981,147 | |
| 3,019,718 | |
| 15,282 | |
| 2,908 | |
| 25,205 | |
| 43,395 | |
| 3,153,369 | |
| 3,196,764 |
Consumer indirect | |
| 11,152 | |
| 151 | |
| 0 | |
| 11,303 | |
| 1,594,356 | |
| 1,605,659 | |
| 15,175 | |
| 290 | |
| 0 | |
| 15,465 | |
| 1,692,837 | |
| 1,708,302 |
Consumer direct | |
| 1,100 | |
| 81 | |
| 26 | |
| 1,207 | |
| 175,782 | |
| 176,989 | |
| 1,313 | |
| 29 | |
| 24 | |
| 1,366 | |
| 183,935 | |
| 185,301 |
Home equity | |
| 2,344 | |
| 286 | |
| 2,032 | |
| 4,662 | |
| 427,365 | |
| 432,027 | |
| 3,331 | |
| 504 | |
| 2,255 | |
| 6,090 | |
| 438,674 | |
| 444,764 |
Total | | $ | 31,877 | | $ | 4,027 | | $ | 29,745 | | $ | 65,649 | | $ | 8,916,686 | | $ | 8,982,335 | | $ | 48,646 | | $ | 3,731 | | $ | 33,122 | | $ | 85,499 | | $ | 9,364,567 | | $ | 9,450,066 |
14
The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of December 31, 2022:
| | | | | | | | | | | | | | | | | | |
| | Past Due | | 90+ Days Past | | | | | | | | | | | | | ||
| | 30 – 89 | | Due and | | | | | Total | | | | | | | |||
(000’s omitted) |
| Days |
| Still Accruing |
| Nonaccrual |
| Past Due |
| Current |
| Total Loans | ||||||
Business lending | | $ | 9,818 | | $ | 0 | | $ | 4,689 | | $ | 14,507 | | $ | 3,631,158 | | $ | 3,645,665 |
Consumer mortgage | |
| 13,757 | |
| 3,510 | |
| 22,583 | |
| 39,850 | |
| 2,972,625 | |
| 3,012,475 |
Consumer indirect | |
| 16,767 | |
| 178 | |
| 0 | |
| 16,945 | |
| 1,522,708 | |
| 1,539,653 |
Consumer direct | |
| 1,307 | |
| 132 | |
| 28 | |
| 1,467 | |
| 176,138 | |
| 177,605 |
Home equity | |
| 3,595 | |
| 299 | |
| 1,945 | |
| 5,839 | |
| 428,157 | |
| 433,996 |
Total | | $ | 45,244 | | $ | 4,119 | | $ | 29,245 | | $ | 78,608 | | $ | 8,730,786 | | $ | 8,809,394 |
No interest income on nonaccrual loans was recognized during the three and nine months ended March 31, 2023 and 2022.September 30, 2023. An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income.
16
The Company uses several credit quality indicators to assess credit risk in an ongoing manner. The Company’s primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as “pass”, “special mention”, “classified”, or “doubtful”. Credit risk ratings are applied to loans individually based on a case-by-case evaluation. In general, the following are the definitions of the Company’s credit quality indicators:
| | |
Pass |
| The condition of the borrower and the performance of the loans are satisfactory or better. |
Special Mention | | The condition of the borrower has deteriorated and the loan has potential weaknesses, although the loan performs as agreed. Loss may be incurred at some future date if conditions deteriorate further. |
Classified | | The condition of the borrower has significantly deteriorated and the loan has a well-defined weakness or weaknesses. The performance of the loan could further deteriorate and incur loss if deficiencies are not corrected. |
Doubtful | | The condition of the borrower has deteriorated to the point that collection of the balance is improbable based on current facts and conditions and loss is likely. |
15
The following tables show the amount of business lending loans by credit quality category at March 31,September 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||||
(000’s omitted) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized |
| Converted | | | | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||||||||||||||||||||
March 31, 2023 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Cost Basis | | to Term |
| Total | ||||||||||||||||||||||||||||||||||||
September 30, 2023 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Cost Basis |
| to Term |
| Total | ||||||||||||||||||||||||||||||||||||
Business lending: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
Risk rating |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
Pass | | $ | 129,658 | | $ | 730,008 | | $ | 361,349 | | $ | 221,000 | | $ | 237,879 | | $ | 753,972 | | $ | 667,589 | | $ | 442,133 | | $ | 3,543,588 | | $ | 290,903 | | $ | 659,190 | | $ | 325,480 | | $ | 205,591 | | $ | 224,256 | | $ | 710,607 | | $ | 721,951 | | $ | 526,358 | | $ | 3,664,336 |
Special mention | |
| 623 | |
| 2,620 | |
| 4,712 | |
| 6,926 | |
| 3,261 | |
| 56,953 | |
| 30,721 | | | 31,774 | |
| 137,590 | |
| 19,647 | |
| 3,463 | |
| 18,359 | |
| 2,655 | |
| 3,523 | |
| 58,407 | |
| 22,473 | | | 43,473 | |
| 172,000 |
Classified | |
| 224 | |
| 2,972 | |
| 399 | |
| 1,126 | |
| 3,034 | |
| 32,787 | |
| 6,770 | | | 19,452 | |
| 66,764 | |
| 459 | |
| 2,746 | |
| 2,657 | |
| 5,146 | |
| 2,863 | |
| 21,488 | |
| 14,428 | | | 28,324 | |
| 78,111 |
Doubtful | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | | | 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 488 | |
| 0 | |
| 0 | |
| 0 | | | 0 | |
| 488 |
Total business lending | | $ | 130,505 | | $ | 735,600 | | $ | 366,460 | | $ | 229,052 | | $ | 244,174 | | $ | 843,712 | | $ | 705,080 | | $ | 493,359 | | $ | 3,747,942 | | $ | 311,009 | | $ | 665,399 | | $ | 346,496 | | $ | 213,880 | | $ | 230,642 | | $ | 790,502 | | $ | 758,852 | | $ | 598,155 | | $ | 3,914,935 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge-offs | | $ | 0 | | $ | 47 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 128 | | $ | 0 | | $ | 175 | | $ | 0 | | $ | 160 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 458 | | $ | 0 | | $ | 618 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||
(000’s omitted) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||
December 31, 2022 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Cost Basis |
| to Term |
| Total | |||||||||
Business lending: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 747,573 | | $ | 373,913 | | $ | 232,591 | | $ | 246,820 | | $ | 168,468 | | $ | 604,745 | | $ | 646,771 | | $ | 401,531 | | $ | 3,422,412 |
Special mention | |
| 2,787 | |
| 4,836 | |
| 3,781 | |
| 3,676 | |
| 14,593 | |
| 45,627 | |
| 29,403 | | | 29,975 | |
| 134,678 |
Classified | |
| 1,800 | |
| 775 | |
| 1,138 | |
| 3,196 | |
| 12,235 | |
| 38,138 | |
| 10,587 | | | 20,706 | |
| 88,575 |
Doubtful | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | | | 0 | |
| 0 |
Total business lending | | $ | 752,160 | | $ | 379,524 | | $ | 237,510 | | $ | 253,692 | | $ | 195,296 | | $ | 688,510 | | $ | 686,761 | | $ | 452,212 | | $ | 3,645,665 |
1617
All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming. Performing loans include loans classified as current as well as those classified as 30 - 89 days past due. Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.
The following table details the balances in all other loan categories at March 31,September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||||
(000’s omitted) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||||||||||||||||||||
March 31, 2023 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Cost Basis |
| to Term |
| Total | ||||||||||||||||||||||||||||||||||||
September 30, 2023 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Cost Basis |
| to Term |
| Total | ||||||||||||||||||||||||||||||||||||
Consumer mortgage: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
FICO AB(1) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 51,091 | | $ | 369,653 | | $ | 483,070 | | $ | 213,716 | | $ | 169,347 | | $ | 676,623 | | $ | 369 | | $ | 65,562 | | $ | 2,029,431 | | $ | 274,173 | | $ | 358,296 | | $ | 466,228 | | $ | 203,702 | | $ | 160,654 | | $ | 629,208 | | $ | 0 | | $ | 79,618 | | $ | 2,171,879 |
Nonperforming | |
| 0 | |
| 27 | |
| 471 | |
| 567 | |
| 130 | |
| 4,949 | |
| 0 | | | 447 | |
| 6,591 | |
| 0 | |
| 415 | |
| 707 | |
| 566 | |
| 175 | |
| 5,207 | |
| 0 | | | 198 | |
| 7,268 |
Total FICO AB | |
| 51,091 | |
| 369,680 | |
| 483,541 | |
| 214,283 | |
| 169,477 | |
| 681,572 | |
| 369 | | | 66,009 | |
| 2,036,022 | |
| 274,173 | |
| 358,711 | |
| 466,935 | |
| 204,268 | |
| 160,829 | |
| 634,415 | |
| 0 | | | 79,816 | |
| 2,179,147 |
FICO CDE(2) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | |
| 18,148 | |
| 161,398 | |
| 176,898 | |
| 109,853 | |
| 78,092 | |
| 368,417 | |
| 27,200 | | | 23,477 | |
| 963,483 | |
| 93,988 | |
| 153,636 | |
| 169,225 | |
| 105,444 | |
| 73,939 | |
| 343,507 | |
| 28,997 | | | 28,036 | |
| 996,772 |
Nonperforming | |
| 0 | |
| 614 | |
| 900 | |
| 1,311 | |
| 1,496 | |
| 14,877 | |
| 0 | | | 1,015 | |
| 20,213 | |
| 0 | |
| 1,592 | |
| 1,362 | |
| 1,250 | |
| 1,476 | |
| 13,909 | |
| 0 | | | 1,256 | |
| 20,845 |
Total FICO CDE | |
| 18,148 | |
| 162,012 | |
| 177,798 | |
| 111,164 | |
| 79,588 | |
| 383,294 | |
| 27,200 | | | 24,492 | |
| 983,696 | |
| 93,988 | |
| 155,228 | |
| 170,587 | |
| 106,694 | |
| 75,415 | |
| 357,416 | |
| 28,997 | | | 29,292 | |
| 1,017,617 |
Total consumer mortgage | | $ | 69,239 | | $ | 531,692 | | $ | 661,339 | | $ | 325,447 | | $ | 249,065 | | $ | 1,064,866 | | $ | 27,569 | | $ | 90,501 | | $ | 3,019,718 | | $ | 368,161 | | $ | 513,939 | | $ | 637,522 | | $ | 310,962 | | $ | 236,244 | | $ | 991,831 | | $ | 28,997 | | $ | 109,108 | | $ | 3,196,764 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge-offs | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 19 | | $ | 0 | | $ | 0 | | $ | 19 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 85 | | $ | 281 | | $ | 0 | | $ | 0 | | $ | 366 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer indirect: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 203,427 | | $ | 731,811 | | $ | 381,847 | | $ | 112,730 | | $ | 82,525 | | $ | 93,168 | | $ | 0 | | $ | 0 | | $ | 1,605,508 | | $ | 573,832 | | $ | 622,019 | | $ | 306,229 | | $ | 83,299 | | $ | 55,759 | | $ | 66,874 | | $ | 0 | | $ | 0 | | $ | 1,708,012 |
Nonperforming | |
| 0 | |
| 18 | |
| 31 | |
| 73 | |
| 0 | |
| 29 | |
| 0 | | | 0 | |
| 151 | |
| 46 | |
| 154 | |
| 19 | |
| 33 | |
| 6 | |
| 32 | |
| 0 | | | 0 | |
| 290 |
Total consumer indirect | | $ | 203,427 | | $ | 731,829 | | $ | 381,878 | | $ | 112,803 | | $ | 82,525 | | $ | 93,197 | | $ | 0 | | $ | 0 | | $ | 1,605,659 | | $ | 573,878 | | $ | 622,173 | | $ | 306,248 | | $ | 83,332 | | $ | 55,765 | | $ | 66,906 | | $ | 0 | | $ | 0 | | $ | 1,708,302 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge-offs | | $ | 0 | | $ | 913 | | $ | 621 | | $ | 382 | | $ | 189 | | $ | 426 | | $ | 0 | | $ | 0 | | $ | 2,531 | | $ | 277 | | $ | 2,551 | | $ | 1,435 | | $ | 890 | | $ | 482 | | $ | 855 | | $ | 0 | | $ | 0 | | $ | 6,490 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer direct: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 22,565 | | $ | 73,630 | | $ | 40,886 | | $ | 14,585 | | $ | 10,188 | | $ | 8,622 | | $ | 6,406 | | $ | 0 | | $ | 176,882 | | $ | 66,421 | | $ | 59,136 | | $ | 30,516 | | $ | 10,059 | | $ | 6,088 | | $ | 6,337 | | $ | 6,690 | | $ | 1 | | $ | 185,248 |
Nonperforming | |
| 0 | |
| 30 | |
| 0 | |
| 0 | |
| 0 | |
| 69 | |
| 8 | | | 0 | |
| 107 | |
| 0 | |
| 0 | |
| 0 | |
| 5 | |
| 5 | |
| 30 | |
| 13 | | | 0 | |
| 53 |
Total consumer direct | | $ | 22,565 | | $ | 73,660 | | $ | 40,886 | | $ | 14,585 | | $ | 10,188 | | $ | 8,691 | | $ | 6,414 | | $ | 0 | | $ | 176,989 | | $ | 66,421 | | $ | 59,136 | | $ | 30,516 | | $ | 10,064 | | $ | 6,093 | | $ | 6,367 | | $ | 6,703 | | $ | 1 | | $ | 185,301 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge-offs | | $ | 0 | | $ | 172 | | $ | 151 | | $ | 15 | | $ | 21 | | $ | 95 | | $ | 51 | | $ | 0 | | $ | 505 | | $ | 70 | | $ | 524 | | $ | 378 | | $ | 48 | | $ | 73 | | $ | 154 | | $ | 119 | | $ | 0 | | $ | 1,366 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Home equity: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 11,531 | | $ | 68,635 | | $ | 70,163 | | $ | 36,328 | | $ | 30,112 | | $ | 53,840 | | $ | 129,361 | | $ | 29,739 | | $ | 429,709 | | $ | 49,059 | | $ | 64,935 | | $ | 65,262 | | $ | 32,797 | | $ | 26,802 | | $ | 47,484 | | $ | 126,958 | | $ | 28,708 | | $ | 442,005 |
Nonperforming | |
| 0 | |
| 0 | |
| 10 | |
| 307 | |
| 173 | |
| 623 | |
| 589 | | | 616 | |
| 2,318 | |
| 0 | |
| 140 | |
| 10 | |
| 244 | |
| 280 | |
| 611 | |
| 942 | | | 532 | |
| 2,759 |
Total home equity | | $ | 11,531 | | $ | 68,635 | | $ | 70,173 | | $ | 36,635 | | $ | 30,285 | | $ | 54,463 | | $ | 129,950 | | $ | 30,355 | | $ | 432,027 | | $ | 49,059 | | $ | 65,075 | | $ | 65,272 | | $ | 33,041 | | $ | 27,082 | | $ | 48,095 | | $ | 127,900 | | $ | 29,240 | | $ | 444,764 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge-offs | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 64 | | $ | 0 | | $ | 9 | | $ | 17 | | $ | 0 | | $ | 90 |
1718
The following table details the balances in all other loan categories at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||
(000’s omitted) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||
December 31, 2022 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior |
| Cost Basis |
| to Term |
| Total | |||||||||
Consumer mortgage: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
FICO AB(1) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | |
| |
|
Performing | | $ | 379,171 | | $ | 492,731 | | $ | 217,889 | | $ | 173,942 | | $ | 100,161 | | $ | 604,258 | | $ | 954 | | $ | 58,639 | | $ | 2,027,745 |
Nonperforming | |
| 0 | |
| 75 | |
| 573 | |
| 184 | |
| 399 | |
| 4,347 | |
| 0 | | | 449 | |
| 6,027 |
Total FICO AB | |
| 379,171 | |
| 492,806 | |
| 218,462 | |
| 174,126 | |
| 100,560 | |
| 608,605 | |
| 954 | | | 59,088 | |
| 2,033,772 |
FICO CDE(2) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | |
| 160,388 | |
| 178,262 | |
| 112,640 | |
| 79,357 | |
| 54,861 | |
| 323,189 | |
| 27,884 | | | 22,056 | |
| 958,637 |
Nonperforming | |
| 120 | |
| 974 | |
| 1,250 | |
| 1,606 | |
| 2,127 | |
| 13,177 | |
| 151 | | | 661 | |
| 20,066 |
Total FICO CDE | |
| 160,508 | |
| 179,236 | |
| 113,890 | |
| 80,963 | |
| 56,988 | |
| 336,366 | |
| 28,035 | | | 22,717 | |
| 978,703 |
Total consumer mortgage | | $ | 539,679 | | $ | 672,042 | | $ | 332,352 | | $ | 255,089 | | $ | 157,548 | | $ | 944,971 | | $ | 28,989 | | $ | 81,805 | | $ | 3,012,475 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer indirect: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 777,513 | | $ | 422,594 | | $ | 129,449 | | $ | 99,593 | | $ | 52,298 | | $ | 58,028 | | $ | 0 | | $ | 0 | | $ | 1,539,475 |
Nonperforming | |
| 18 | |
| 1 | |
| 53 | |
| 67 | |
| 15 | |
| 24 | |
| 0 | | | 0 | |
| 178 |
Total consumer indirect | | $ | 777,531 | | $ | 422,595 | | $ | 129,502 | | $ | 99,660 | | $ | 52,313 | | $ | 58,052 | | $ | 0 | | $ | 0 | | $ | 1,539,653 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer direct: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 84,111 | | $ | 46,381 | | $ | 17,066 | | $ | 12,729 | | $ | 5,573 | | $ | 5,020 | | $ | 6,563 | | $ | 2 | | $ | 177,445 |
Nonperforming | |
| 6 | |
| 51 | |
| 1 | |
| 1 | |
| 29 | |
| 50 | |
| 22 | | | 0 | |
| 160 |
Total consumer direct | | $ | 84,117 | | $ | 46,432 | | $ | 17,067 | | $ | 12,730 | | $ | 5,602 | | $ | 5,070 | | $ | 6,585 | | $ | 2 | | $ | 177,605 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Home equity: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| |
Performing | | $ | 69,575 | | $ | 72,270 | | $ | 37,964 | | $ | 31,506 | | $ | 16,068 | | $ | 41,097 | | $ | 132,703 | | $ | 30,569 | | $ | 431,752 |
Nonperforming | |
| 0 | |
| 10 | |
| 114 | |
| 169 | |
| 105 | |
| 606 | |
| 563 | | | 677 | |
| 2,244 |
Total home equity | | $ | 69,575 | | $ | 72,280 | | $ | 38,078 | | $ | 31,675 | | $ | 16,173 | | $ | 41,703 | | $ | 133,266 | | $ | 31,246 | | $ | 433,996 |
Business lending loans greater than $0.5 million that are on nonaccrual are individually assessed, and if necessary, a specific allocation of the allowance for credit losses is provided. A summary of individually assessed business loans as of March 31,September 30, 2023 and December 31, 2022 follows:
| | | | | | | | | | | | |
|
| March 31, |
| December 31, |
| September 30, |
| December 31, | ||||
(000’s omitted) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Loans with allowance allocation | | $ | 0 | | $ | 0 | | $ | 3,484 | | $ | 0 |
Loans without allowance allocation | |
| 3,093 | |
| 3,163 | |
| 1,055 | |
| 3,163 |
Carrying balance | |
| 3,093 | |
| 3,163 | |
| 4,539 | |
| 3,163 |
Contractual balance | |
| 4,201 | |
| 4,201 | |
| 4,555 | |
| 4,201 |
Specifically allocated allowance | |
| 0 | |
| 0 | |
| 470 | |
| 0 |
The average carrying balance of individually assessed loans was $3.1$4.5 million and $12.3$3.2 million for the three months ended March 31,September 30, 2023 and 2022, respectively. The average carrying balance of individually assessed loans was $6.6 million and $12.2 million for the nine months ended September 30, 2023 and 2022, respectively. No interest income was recognized on individually assessed loans for the three or nine months ended March 31,September 30, 2023 and 2022.
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
1819
In some cases, the Company provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. DuringThe estimate of allowance for credit losses includes historical losses from loans that were modified due to borrower financial difficulty, therefore a change to the allowance for credit losses is generally not recorded upon modification.
The following tables present the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the three and nine months ended March 31,September 30, 2023, by class and by type of modification. The percentage of the amountamortized cost basis of loans that were modified to borrowers experiencing financial difficulty was immaterial.as compared to the amortized cost basis of each class of financing receivable is also presented below.
| | | | | | |
| | Three Months Ended |
| |||
| | September 30, 2023 |
| |||
| | | | | Total Class of |
|
| | Term | | Financing |
| |
(000s omitted except for percentages) |
| Extension |
| Receivable |
| |
Business lending | | $ | 1,401 |
| 0.04 | % |
Total | | $ | 1,401 |
| 0.01 | % |
| | | | | | |
| | Nine Months Ended |
| |||
| | September 30, 2023 |
| |||
| | | | | Total Class of |
|
| | Term | | Financing |
| |
(000s omitted except for percentages) |
| Extension |
| Receivable |
| |
Business lending | | $ | 2,150 |
| 0.05 | % |
Consumer mortgage | |
| 198 |
| 0.01 | % |
Home equity | |
| 29 |
| 0.01 | % |
Total | | $ | 2,377 |
| 0.03 | % |
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified at September 30, 2023.
| | | | | | | | | | | | | | | |
| | | | | | | | 90+ Days Past | | | | | | | |
| | | | | Past Due 30 – | | Due and Still | | Non- | | | | |||
(000s omitted) |
| Current |
| 89 Days |
| Accruing |
| Accrual |
| Total | |||||
Business lending | | $ | 2,150 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2,150 |
Consumer mortgage | |
| 0 | |
| 0 | |
| 0 | |
| 198 | |
| 198 |
Home equity | |
| 29 | |
| 0 | |
| 0 | |
| 0 | |
| 29 |
Total | | $ | 2,179 | | $ | 0 | | $ | 0 | | $ | 198 | | $ | 2,377 |
20
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:
| | |
| | Three Months Ended |
| | September 30, 2023 |
| | Weighted-Average |
| Term Extension (Years) | |
Business lending | 10.0 | |
Total | 10.0 |
| | |
| | Nine Months Ended |
| | September 30, 2023 |
| | Weighted-Average |
| Term Extension (Years) | |
Business lending | 8.3 | |
Consumer mortgage | 3.1 | |
Home equity | 9.9 | |
Total | 7.8 |
There were no loans modified to borrowers with financial difficulty that had a payment default subsequent to modification during the three and nine months ended September 30, 2023.
Prior to the adoption of ASU 2022-02 on January 1, 2023, modified loans were reviewed by the Company to identify if a troubled debt restructuring (“TDR”) had occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial standing and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. The amount of TDRs as of December 31, 2022 and the amountare presented below.
| | | | | | | | | | | | | | | |
| | December 31, 2022 | |||||||||||||
(000’s omitted) |
| Nonaccrual |
| Accruing |
| Total | |||||||||
|
| # |
| Amount |
| # |
| Amount |
| # |
| Amount | |||
Business lending |
| 1 | | $ | 135 |
| 3 | | $ | 271 |
| 4 | | $ | 406 |
Consumer mortgage |
| 52 | |
| 2,218 |
| 46 | |
| 2,114 |
| 98 | |
| 4,332 |
Consumer indirect |
| 0 | |
| 0 |
| 56 | |
| 600 |
| 56 | |
| 600 |
Consumer direct |
| 0 | |
| 0 |
| 18 | |
| 5 |
| 18 | |
| 5 |
Home equity |
| 9 | |
| 108 |
| 9 | |
| 178 |
| 18 | |
| 286 |
Total |
| 62 | | $ | 2,461 |
| 132 | | $ | 3,168 |
| 194 | | $ | 5,629 |
21
The following table presents information related to loans modified in a TDR during the three months and nine months ended March 31,September 30, 2022. Of the loans noted in the table below, all consumer mortgage loans for the three months and nine months ended September 30, 2022 were modified due to a Chapter 7 bankruptcy as described previously. The financial effects of these restructurings were immaterial.
| | | | | | | | | | |
| | Three Months Ended |
| Nine Months Ended | ||||||
| | September 30, 2022 | | September 30, 2022 | ||||||
| | Number of | | Outstanding | | Number of | | Outstanding | ||
(000’s omitted) |
| loans modified |
| Balance |
| loans modified |
| Balance | ||
Business lending |
| 0 | | $ | 0 |
| 0 | | $ | 0 |
Consumer mortgage |
| 1 | |
| 184 |
| 5 | |
| 459 |
Consumer indirect |
| 6 | |
| 71 |
| 12 | |
| 127 |
Consumer direct |
| 2 | |
| 3 |
| 2 | |
| 3 |
Home equity |
| 0 | |
| 0 |
| 1 | |
| 6 |
Total |
| 9 | | $ | 258 |
| 20 | | $ | 595 |
Allowance for Credit Losses
The following presents by loan segment the activity in the allowance for credit losses during the three months and nine months ended March 31,September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | | Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| | Beginning | | Charge- | | | | | | | | Ending | | Beginning | | Charge- | | | | | | | | Ending | ||||||
(000’s omitted) |
| balance |
| offs |
| Recoveries |
| Provision |
| balance |
| balance |
| offs |
| Recoveries |
| Provision |
| balance | ||||||||||
Business lending | | $ | 23,297 | | $ | (175) | | $ | 172 | | $ | 1,933 | | $ | 25,227 | | $ | 25,291 | | $ | (139) | | $ | 152 | | $ | 740 | | $ | 26,044 |
Consumer mortgage | |
| 14,343 | |
| (19) | |
| 7 | |
| (53) | |
| 14,278 | |
| 14,553 | |
| (143) | |
| 3 | |
| 558 | |
| 14,971 |
Consumer indirect | |
| 17,852 | |
| (2,531) | |
| 1,347 | |
| 1,379 | |
| 18,047 | |
| 17,808 | |
| (2,100) | |
| 1,319 | |
| 1,263 | |
| 18,290 |
Consumer direct | |
| 2,973 | |
| (505) | |
| 187 | |
| 375 | |
| 3,030 | |
| 3,032 | |
| (554) | |
| 217 | |
| 351 | |
| 3,046 |
Home equity | |
| 1,594 | |
| 0 | |
| 6 | |
| (12) | |
| 1,588 | |
| 1,600 | |
| (6) | |
| 2 | |
| (2) | |
| 1,594 |
Unallocated | |
| 1,000 | |
| 0 | |
| 0 | |
| 0 | |
| 1,000 | |
| 1,000 | |
| 0 | |
| 0 | |
| 0 | |
| 1,000 |
Allowance for credit losses – loans | |
| 61,059 | |
| (3,230) | |
| 1,719 | |
| 3,622 | |
| 63,170 | |
| 63,284 | |
| (2,942) | |
| 1,693 | |
| 2,910 | |
| 64,945 |
Liabilities for off-balance-sheet credit exposures | |
| 1,123 | |
| 0 | |
| 0 | |
| (122) | |
| 1,001 | |
| 933 | |
| 0 | |
| 0 | |
| (32) | |
| 901 |
Total allowance for credit losses | | $ | 62,182 | | $ | (3,230) | | $ | 1,719 | | $ | 3,500 | | $ | 64,171 | | $ | 64,217 | | $ | (2,942) | | $ | 1,693 | | $ | 2,878 | | $ | 65,846 |
| | | | | | | | | | | | | | | | |||||||||||||||
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | |||||||||||||
| | Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | |||||||||||||
|
| Beginning |
| Charge- |
| |
| |
| Ending | | Beginning | | Charge- | | | | | | | | Ending | ||||||||
(000’s omitted) | | balance | | offs | | Recoveries | | Provision | | balance |
| balance |
| offs |
| Recoveries |
| Provision |
| balance | ||||||||||
Business lending | | $ | 22,995 | | $ | (116) | | $ | 339 | | $ | (1,454) | | $ | 21,764 | | $ | 23,241 | | $ | (495) | | $ | 755 | | $ | 430 | | $ | 23,931 |
Consumer mortgage | |
| 10,017 | |
| (40) | |
| 9 | |
| 338 | |
| 10,324 | | | 12,631 | | | (113) | | | 4 | | | 1,296 | | | 13,818 |
Consumer indirect | |
| 11,737 | |
| (1,688) | |
| 1,000 | |
| 1,817 | |
| 12,866 |
| | 14,378 |
| | (1,706) |
| | 1,386 |
| | 2,960 |
| | 17,018 |
Consumer direct | |
| 2,306 | |
| (301) | |
| 176 | |
| 544 | |
| 2,725 |
| | 2,822 |
| | (342) |
| | 174 |
| | 361 |
| | 3,015 |
Home equity | |
| 1,814 | |
| (11) | |
| 93 | |
| (428) | |
| 1,468 |
| | 1,470 |
| | (32) |
| | 11 |
| | 132 |
| | 1,581 |
Unallocated | |
| 1,000 | |
| 0 | |
| 0 | |
| 0 | |
| 1,000 |
| | 1,000 |
| | 0 |
| | 0 |
| | 0 |
| | 1,000 |
Allowance for credit losses – loans | |
| 49,869 | |
| (2,156) | |
| 1,617 | |
| 817 | |
| 50,147 |
| | 55,542 |
| | (2,688) |
| | 2,330 |
| | 5,179 |
| | 60,363 |
Liabilities for off-balance-sheet credit exposures | |
| 803 | |
| 0 | |
| 0 | |
| 89 | |
| 892 |
| | 1,223 |
| | 0 |
| | 0 |
| | (118) |
| | 1,105 |
Total allowance for credit losses | | $ | 50,672 | | $ | (2,156) | | $ | 1,617 | | $ | 906 | | $ | 51,039 | | $ | 56,765 | | $ | (2,688) | | $ | 2,330 | | $ | 5,061 | | $ | 61,468 |
22
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 | |||||||||||||
|
| Beginning |
| Charge- |
| |
| |
| Ending | |||||
(000’s omitted) | | balance | | offs | | Recoveries | | Provision | | balance | |||||
Business lending | | $ | 23,297 | | $ | (618) | | $ | 437 | | $ | 2,928 | | $ | 26,044 |
Consumer mortgage | |
| 14,343 | |
| (366) | |
| 35 | |
| 959 | |
| 14,971 |
Consumer indirect | |
| 17,852 | |
| (6,490) | |
| 4,342 | |
| 2,586 | |
| 18,290 |
Consumer direct | |
| 2,973 | |
| (1,366) | |
| 637 | |
| 802 | |
| 3,046 |
Home equity | |
| 1,594 | |
| (90) | |
| 13 | |
| 77 | |
| 1,594 |
Unallocated | |
| 1,000 | |
| 0 | |
| 0 | |
| 0 | |
| 1,000 |
Allowance for credit losses – loans | |
| 61,059 | |
| (8,930) | |
| 5,464 | |
| 7,352 | |
| 64,945 |
Liabilities for off-balance-sheet credit exposures | |
| 1,123 | |
| 0 | |
| 0 | |
| (222) | |
| 901 |
Total allowance for credit losses | | $ | 62,182 | | $ | (8,930) | | $ | 5,464 | | $ | 7,130 | | $ | 65,846 |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 | ||||||||||||||||
| | | | | | | | | | | PCD | | | | | | | |
|
| Beginning |
| Charge- |
| | | | Allowance at |
| |
| Ending | |||||
(000’s omitted) | | balance | | offs | | Recoveries | | Acquisition | | Provision | | balance | ||||||
Business lending | | $ | 22,995 | | $ | (650) | | $ | 1,249 | | $ | 71 | | $ | 266 | | $ | 23,931 |
Consumer mortgage | |
| 10,017 | |
| (230) | |
| 21 | | | 0 | |
| 4,010 | |
| 13,818 |
Consumer indirect | |
| 11,737 | |
| (5,183) | |
| 3,732 | | | 0 | |
| 6,732 | |
| 17,018 |
Consumer direct | |
| 2,306 | |
| (859) | |
| 577 | | | 0 | |
| 991 | |
| 3,015 |
Home equity | |
| 1,814 | |
| (69) | |
| 132 | | | 0 | |
| (296) | |
| 1,581 |
Unallocated | |
| 1,000 | |
| 0 | |
| 0 | | | 0 | |
| 0 | |
| 1,000 |
Allowance for credit losses – loans | |
| 49,869 | |
| (6,991) | |
| 5,711 | | | 71 | |
| 11,703 | |
| 60,363 |
Liabilities for off-balance-sheet credit exposures | |
| 803 | |
| 0 | |
| 0 | | | 0 | |
| 302 | |
| 1,105 |
Total allowance for credit losses | | $ | 50,672 | | $ | (6,991) | | $ | 5,711 | | $ | 71 | | $ | 12,005 | | $ | 61,468 |
The allowance for credit losses for loans increased to $63.2$64.9 million at March 31,September 30, 2023 compared to $61.1 million at December 31, 2022 and $50.1$60.4 million at March 31,September 30, 2022, reflective of a weakerstable economic forecast and an increase in loans outstanding.
Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $23.8$28.4 million at March 31,September 30, 2023 and is excluded from the estimate of credit losses and amortized cost basis of loans.
19
Under ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), also referred to as “CECL”, the Company utilizes the historical loss rate on its loan portfolio as the initial basis for the estimate of credit losses using the cumulative loss, vintage loss and line loss methods, which is derived from the Company’s historical loss experience. Adjustments to historical loss experience were made for differences in current loan-specific risk characteristics and to address current period delinquencies, charge-off rates, risk ratings, lack of loan level data through an entire economic cycle, changes in loan sizes and underwriting standards, as well as the addition of acquired loans which were not underwritten by the Company. The Company considered historical losses immediately prior, through and following the Great Recession of 2008 compared to the historical period used for modeling to adjust the historical information to account for longer-term expectations for loan credit performance. Under CECL, the Company is required to consider future economic conditions to determine current expected credit losses. Management selected an eight-quarter reasonable and supportable forecast period usingwith a four-quarter reversion to the historical mean to use as part of the economic forecast, and utilizes a two-quarter lag adjustment for economic factors that are not dependent on collateral values and no lag for factors that do utilize collateral values, with a four-quarter reversion to the historical mean, to use as part of the economic forecast.values. Management determined that these qualitative adjustments were needed to adjust historical information for expected losses and to reflect changes as a result of current conditions.
For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that are weighted, with forecasts available as of March 31,September 30, 2023. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and include the impact of a decline in residential real estate and vehicle prices as well as inflation. The scenarios utilized forecast stable unemployment levels offset by modest GDP and household income growth and continued deterioration in residential real estate, commercial real estate and used auto prices.
23
Management developed expected loss estimates considering factors for segments as outlined below:
● | Business lending – non real estate: The Company selected projected unemployment and GDP as indicators of forecasted losses related to business lending and utilize both factors in an even weight for the calculation. The Company also considered delinquencies, risk rating changes, recent charge-off history and acquired loans as part of the review of estimated losses. |
● | Business lending – real estate: The Company selected projected unemployment and commercial real estate values as indicators of forecasted losses related to commercial real estate loans and utilize both factors in an even weight for the calculation. The Company also considered the factors noted in business lending – non real estate. |
● | Consumer mortgages and home equity: The Company selected projected unemployment and residential real estate values as indicators of forecasted losses related to mortgage lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered. |
● | Consumer indirect: The Company selected projected unemployment and vehicle valuation indices as indicators of forecasted losses related to indirect lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered. |
● | Consumer direct: The Company selected projected unemployment and inflation-adjusted household income as indicators of forecasted losses related to consumer direct lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered. |
At September 30, 2023, loans with a carrying amount of approximately $4.30 billion were pledged to secure certain borrowings with the FHLB and FRB. There were $315.8 million of borrowings outstanding under these arrangements at September 30, 2023.
During the threenine months ended March 31,September 30, 2023, the Company did not purchase any loans, while the Company sold $0.5$4.6 million of secondary market eligible residential consumer mortgage loans during the period. During the nine months ended September 30, 2022, the Company purchased $436.9 million of loans in connection with the acquisition of Elmira, consisting of $125.3 million of business lending loans, $271.4 million of consumer mortgage loans, $9.4 million of consumer indirect loans, $12.5 million of consumer direct loans and $18.3 million of home equity loans. The Company sold $4.5 million of secondary market eligible residential consumer mortgage loans during the nine months ended September 30, 2022.
20
NOTE F: GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| December 31, 2022 | | September 30, 2023 |
| December 31, 2022 | ||||||||||||||||||||||||||||
| | Gross | | | | | Net | | Gross | | | | | Net | | Gross | | | | | Net | | Gross | | | | | Net | ||||||||
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying | ||||||||||||
(000’s omitted) | | Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | | Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | ||||||||||||
Amortizing intangible assets: | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Core deposit intangibles | | $ | 77,373 | | $ | (66,265) | | $ | 11,108 | | $ | 77,373 | | $ | (65,069) | | $ | 12,304 | | $ | 77,373 | | $ | (68,286) | | $ | 9,087 | | $ | 77,373 | | $ | (65,069) | | $ | 12,304 |
Other intangibles | |
| 120,462 | |
| (73,592) | |
| 46,870 | |
| 119,813 | |
| (71,121) | |
| 48,692 | |
| 125,703 | |
| (78,852) | |
| 46,851 | |
| 119,813 | |
| (71,121) | |
| 48,692 |
Total amortizing intangibles | | $ | 197,835 | | $ | (139,857) | | $ | 57,978 | | $ | 197,186 | | $ | (136,190) | | $ | 60,996 | | $ | 203,076 | | $ | (147,138) | | $ | 55,938 | | $ | 197,186 | | $ | (136,190) | | $ | 60,996 |
24
The estimated aggregate amortization expense for each of the five succeeding fiscal years ended December 31 is as follows:
| | | | | | |
(000’s omitted) | (000’s omitted) | (000’s omitted) | ||||
Apr - Dec 2023 | | $ | 10,153 | |||
Oct - Dec 2023 | | $ | 3,563 | |||
2024 | | | 11,730 | | | 12,808 |
2025 | |
| 9,994 | |
| 10,927 |
2026 | |
| 8,838 | |
| 9,625 |
2027 | |
| 3,408 | |
| 4,049 |
Thereafter | |
| 13,855 | |
| 14,966 |
Total | | $ | 57,978 | | $ | 55,938 |
Shown below are the components of the Company’s goodwill at December 31, 2022 and March 31,September 30, 2023:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | ||||
(000’s omitted) |
| December 31, 2022 |
| Activity |
| March 31, 2023 |
| December 31, 2022 |
| Additions |
| September 30, 2023 | ||||||
Goodwill | | $ | 841,841 | | $ | 1,095 | | $ | 842,936 | | $ | 841,841 | | $ | 3,555 | | $ | 845,396 |
NOTE G: BORROWINGS
During the third quarter of 2023, the Company secured $300.0 million of fixed rate FHLB term borrowings. The borrowings consisted of a $100.0 million five year fixed rate advance with a rate of 4.50% and a $200.0 million five year monthly amortizing advance with a rate of 4.78%, both of which have contractual final maturity dates in August 2028.
NOTE G:H: BENEFIT PLANS
The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors. The Company accrues for the estimated cost of these benefits through charges to expense during the years that employees earn these benefits. The service cost component of net periodic benefit income is included in the salaries and employee benefits line of the consolidated statements of income, while the other components of net periodic benefit income are included in other expenses. The Company did not makemade a $4.3 million contribution to its defined benefit pension plan in the firstsecond quarter of 2023. The Company made a $0.1 million contribution to its defined benefit pension plan in the first quarter of 2022.
The post-retirement benefits component of net periodic benefit cost for the three and nine months ended March 31,September 30, 2023 and 2022 is immaterial. The pension benefits component of net periodic benefit cost for the three and nine months ended September 30, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Post-retirement Benefits | | Pension Benefits | ||||||||||||||||||
| | Three Months Ended | | Three Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | March 31, | | March 31, | | September 30, | | September 30, | ||||||||||||||||
(000’s omitted) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
Service cost | | $ | 1,108 | | $ | 1,240 | | $ | 0 | | $ | 0 | | $ | 1,108 | | $ | 1,240 | | $ | 3,324 | | $ | 3,720 |
Interest cost | | | 1,890 | | | 1,334 | | | 23 | | | 11 | | | 1,890 | | | 1,334 | | | 5,670 | | | 4,002 |
Expected return on plan assets | |
| (4,020) | |
| (4,756) | | | 0 | | | 0 | |
| (4,020) | |
| (4,756) | | | (12,060) | | | (14,268) |
Amortization of unrecognized net (gain) loss | |
| (555) | |
| 211 | | | 6 | | | 9 | |
| (555) | |
| 211 | | | (1,665) | | | 633 |
Amortization of prior service cost | |
| 205 | |
| 154 | | | (45) | | | (45) | |
| 205 | |
| 154 | | | 615 | | | 462 |
Net periodic benefit | | $ | (1,372) | | $ | (1,817) | | $ | (16) | | $ | (25) | | $ | (1,372) | | $ | (1,817) | | $ | (4,116) | | $ | (5,451) |
21
NOTE H:I: EARNINGS PER SHARE
The two class method is used in the calculations of basic and diluted earnings per share. Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings. The Company has determined that all of its outstanding non-vested stock awards are participating securities as of March 31,September 30, 2023.
25
Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period. Diluted earnings per share are based on the weighted-average of the shares outstanding and the assumed exercise of stock options during the year. The dilutive effect of options is calculated using the treasury stock method of accounting. The treasury stock method determines the number of common shares that would be outstanding if all the dilutive options were exercised and the proceeds were used to repurchase common shares in the open market at the average market price for the applicable time period. At March 31,Weighted-average anti-dilutive stock options outstanding for the three and nine months ended September 30, 2023 were immaterial and 0.2 million, respectively, compared to approximately 0.4 million and 0.3 million weighted-average anti-dilutive stock options outstanding were immaterial, compared to approximately 0.2 million for the three and nine months ended March 31,September 30, 2022, respectively, that were not included in the computation below.
The following is a reconciliation of basic to diluted earnings per share for the three and nine months ended March 31,September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||
| | March 31, | | September 30, | | September 30, | ||||||||||||
(000’s omitted, except per share data) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Net income | | $ | 5,798 | | $ | 47,055 | | $ | 44,129 | | $ | 48,691 | | $ | 98,218 | | $ | 135,551 |
Income attributable to unvested stock-based compensation awards | |
| (17) | |
| (119) | |
| (158) | |
| (142) | |
| (327) | |
| (386) |
Income available to common shareholders | | $ | 5,781 | | $ | 46,936 | | $ | 43,971 | | $ | 48,549 | | $ | 97,891 | | $ | 135,165 |
| | | | | | | | | | | | | | | | | | |
Weighted-average common shares outstanding – basic | |
| 53,843 | |
| 53,993 | |
| 53,502 | |
| 53,830 | |
| 53,673 | |
| 53,915 |
Basic earnings per share | | $ | 0.11 | | $ | 0.87 | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.51 |
| | | | | | | | | | | | | | | | | | |
Net income | | $ | 5,798 | | $ | 47,055 | | $ | 44,129 | | $ | 48,691 | | $ | 98,218 | | $ | 135,551 |
Income attributable to unvested stock-based compensation awards | |
| (17) | |
| (119) | |
| (158) | |
| (142) | |
| (327) | |
| (386) |
Income available to common shareholders | | $ | 5,781 | | $ | 46,936 | | $ | 43,971 | | $ | 48,549 | | $ | 97,891 | | $ | 135,165 |
| | | | | | | | | | | | | | | | | | |
Weighted-average common shares outstanding – basic | |
| 53,843 | |
| 53,993 | |
| 53,502 | |
| 53,830 | |
| 53,673 | |
| 53,915 |
Assumed exercise of stock options | |
| 207 | |
| 386 | |
| 104 | |
| 302 | |
| 135 | |
| 328 |
Weighted-average common shares outstanding – diluted | |
| 54,050 | |
| 54,379 | |
| 53,606 | |
| 54,132 | |
| 53,808 | |
| 54,243 |
Diluted earnings per share | | $ | 0.11 | | $ | 0.86 | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.49 |
Stock Repurchase Program
At its December 2022 meeting, the Board of Directors of the Company (the “Board”) approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2023. Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities. The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company’s discretion. There were 200,000500,000 shares of treasury stock purchases made under this authorization during the first quarternine months of 2023.2023 with an average price paid per share of $51.35.
At its December 2021 meeting, the Board approved a stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2022. There were 250,000 shares of treasury stock purchases made under this authorization in 2022, including 50,000 sharesall of treasury stock purchases madewhich were repurchased during the first quarternine months of 2022.2022, with an average price paid per share of $65.51.
2226
NOTE I:J: COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to the Company’s normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. The fair value of the standby letters of credit is immaterial for disclosure.
The contract amounts of commitments and contingencies are as follows:
| | | | | | | | | | | | |
|
| March 31, |
| December 31, |
| September 30, |
| December 31, | ||||
(000’s omitted) | | 2023 | | 2022 | | 2023 | | 2022 | ||||
Commitments to extend credit | | $ | 1,459,684 | | $ | 1,486,791 | | $ | 1,532,806 | | $ | 1,486,791 |
Standby letters of credit | |
| 56,805 | |
| 57,347 | |
| 58,552 | |
| 57,347 |
Total | | $ | 1,516,489 | | $ | 1,544,138 | | $ | 1,591,358 | | $ | 1,544,138 |
The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings or other matters in which claims for monetary damages are asserted. As of March 31,September 30, 2023, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters against the Company or its subsidiaries will be material to the Company’s consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such matters. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable beyond the existing recorded liabilities, is not believed to be between $0 and $1 millionmaterial in the aggregate. This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties. TheWhile the Company does not believe that the outcome of pending or threatened litigation or other matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
On May 11, 2023, the FDIC issued a notice of proposed rulemaking that would implement a special assessment to recover the uninsured deposit losses from recent bank failures. The FDIC has proposed collecting the special assessment over eight quarterly assessment periods beginning in 2024 at an annual rate of approximately 12.5 basis points of uninsured deposits that exceeded $5 billion as of December 31, 2022. There is sufficient uncertainty around the final FDIC regulation that would impact both the timing and amount recognized in the consolidated financial statements. While the Company continues to assess the impact of the special assessment to the Company’s future operating results, if the final rule for the FDIC special assessment is enacted as proposed, the impact is not expected to be material to the Company’s consolidated financial statements.
NOTE J:K: FAIR VALUE
Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. exit price). Inputs used to measure fair value are classified into the following hierarchy:
| |
● Level 1 - | Quoted prices in active markets for identical assets or liabilities. |
● Level 2 - | Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
● Level 3 - | Significant valuation assumptions not readily observable in a market. |
2327
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis. There were no transfers between any of the levels for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | September 30, 2023 | ||||||||||||||||||||
| | | | | | | | | | | Total Fair | | | | | | | | | | | Total Fair | ||
(000’s omitted) |
| Level 1 |
| Level 2 |
| Level 3 |
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||||||
Available-for-sale investment securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. Treasury and agency securities | | $ | 2,511,088 | | $ | 65,903 | | $ | 0 | | $ | 2,576,991 | | $ | 1,921,264 | | $ | 58,175 | | $ | 0 | | $ | 1,979,439 |
Obligations of state and political subdivisions | |
| 0 | |
| 509,869 | |
| 0 | |
| 509,869 | |
| 0 | |
| 434,465 | |
| 0 | |
| 434,465 |
Government agency mortgage-backed securities | |
| 0 | |
| 380,458 | |
| 0 | |
| 380,458 | |
| 0 | |
| 337,071 | |
| 0 | |
| 337,071 |
Corporate debt securities | |
| 0 | |
| 7,190 | |
| 0 | |
| 7,190 | |
| 0 | |
| 7,174 | |
| 0 | |
| 7,174 |
Government agency collateralized mortgage obligations | |
| 0 | |
| 11,485 | |
| 0 | |
| 11,485 | |
| 0 | |
| 9,487 | |
| 0 | |
| 9,487 |
Total available-for-sale investment securities | |
| 2,511,088 | |
| 974,905 | |
| 0 | |
| 3,485,993 | |
| 1,921,264 | |
| 846,372 | |
| 0 | |
| 2,767,636 |
Equity securities | |
| 419 | |
| 0 | |
| 0 | |
| 419 | |
| 320 | |
| 0 | |
| 0 | |
| 320 |
Mortgage loans held for sale | | | 0 | | | 275 | | | 0 | | | 275 | | | 0 | | | 604 | | | 0 | | | 604 |
Commitments to originate real estate loans for sale | | | 0 | | | 0 | | | 29 | | | 29 | | | 0 | | | 0 | | | 13 | | | 13 |
Forward sales commitments | | | 0 | | | 6 | | | 0 | | | 6 | | | 0 | | | 10 | | | 0 | | | 10 |
Total | | $ | 2,511,507 | | $ | 975,186 | | $ | 29 | | $ | 3,486,722 | | $ | 1,921,584 | | $ | 846,986 | | $ | 13 | | $ | 2,768,583 |
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | | | | | | | | | | Total Fair | |
(000’s omitted) |
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Available-for-sale investment securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury and agency securities | | $ | 3,178,189 | | $ | 65,348 | | $ | 0 | | $ | 3,243,537 |
Obligations of state and political subdivisions | |
| 0 | |
| 504,297 | |
| 0 | |
| 504,297 |
Government agency mortgage-backed securities | |
| 0 | |
| 384,633 | |
| 0 | |
| 384,633 |
Corporate debt securities | |
| 0 | |
| 7,114 | |
| 0 | |
| 7,114 |
Government agency collateralized mortgage obligations | |
| 0 | |
| 12,270 | |
| 0 | |
| 12,270 |
Total available-for-sale investment securities | |
| 3,178,189 | |
| 973,662 | |
| 0 | |
| 4,151,851 |
Equity securities | |
| 419 | |
| 0 | |
| 0 | |
| 419 |
Commitments to originate real estate loans for sale | | | 0 | | | 0 | | | 5 | | | 5 |
Forward sales commitments | | | 0 | | | 5 | | | 0 | | | 5 |
Interest rate swap agreements asset | |
| 0 | |
| 1 | |
| 0 | |
| 1 |
Interest rate swap agreements liability | |
| 0 | |
| (1) | | | 0 | |
| (1) |
Total | | $ | 3,178,608 | | $ | 973,667 | | $ | 5 | | $ | 4,152,280 |
24
The valuation techniques used to measure fair value for the items in the table above are as follows:
● | Available-for-sale investment securities and equity securities – The fair values of available-for-sale investment securities are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques. Level 1 securities include U.S. Treasury obligations and marketable equity securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include U.S. agency securities, mortgage-backed securities issued by government-sponsored entities, municipal securities and corporate debt securities that are valued by reference to prices for similar securities or through model-based techniques in which all significant inputs, such as reported trades, trade execution data, interest rate swap yield curves, market prepayment speeds, credit information, market spreads, and security’s terms and conditions, are observable. See Note D for further disclosure of the fair value of investment securities. |
28
● | Mortgage loans held for sale – The Company has elected to value loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts. Accordingly, the impact on the valuation will be recognized in the Company’s consolidated statements of income. All mortgage loans held for sale are current and in performing status. The fair value of mortgage loans held for sale is determined using quoted secondary-market prices of loans with similar characteristics and, as such, has been classified as a Level 2 valuation. The unpaid principal value of mortgage loans held for sale was approximately |
● | Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated statements of condition. The fair value of these forward sales commitments is primarily measured by obtaining pricing from certain government-sponsored entities and reflects the underlying price the entity would pay the Company for an immediate sale on these mortgages. As such, these instruments are classified as Level 2 in the fair value hierarchy. |
● | Commitments to originate real estate loans for sale – The Company enters into various commitments to originate residential real estate loans for sale. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated statements of condition. The estimated fair value of these commitments is determined using quoted secondary market prices obtained from certain government-sponsored entities. Additionally, accounting guidance requires the expected net future cash flows related to the associated servicing of the loan to be included in the fair value measurement of the derivative. The expected net future cash flows are based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Such assumptions include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds. The determination of expected net cash flows is considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale. |
● | Interest rate swap agreements – The interest rate swaps are reported at their fair value utilizing Level 2 inputs from third parties. The fair value of the interest rate swaps are determined using prices obtained from a third party advisor. The fair value measurement of the interest rate swap is determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates derived from observed market interest rate curves. |
25
The changes in Level 3 assets measured at fair value on a recurring basis are immaterial.
The fair value information of assets and liabilities measured on a non-recurring basis presented below is not as of the period-end, but rather as of the date the fair value adjustment was recorded closest to the date presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
|
| | |
| | |
| | | | Total Fair |
| | |
| | |
| | | Total Fair |
| | |
| | |
| | | | Total Fair |
| | |
| | |
| | | Total Fair | ||||||
(000’s omitted) | | Level 1 | | Level 2 | | Level 3 | | Value | | Level 1 | | Level 2 | | Level 3 | | Value | | Level 1 | | Level 2 | | Level 3 | | Value | | Level 1 | | Level 2 | | Level 3 | | Value | ||||||||||||||||
Individually assessed loans | | $ | 0 | | $ | 0 | | $ | 3,014 |
| $ | 3,014 | | $ | 0 | | $ | 0 | | $ | 0 |
| $ | 0 | ||||||||||||||||||||||||
Other real estate owned | | $ | 0 | | $ | 0 | | $ | 508 |
| $ | 508 | | $ | 0 | | $ | 0 | | $ | 503 |
| $ | 503 | | | 0 | | | 0 | | | 578 |
| | 578 | | | 0 | | | 0 | | | 503 |
| | 503 |
Mortgage servicing rights | |
| 0 | |
| 0 | |
| 983 |
|
| 983 | |
| 0 | |
| 0 | |
| 1,169 |
|
| 1,169 | |
| 0 | |
| 0 | |
| 309 |
|
| 309 | |
| 0 | |
| 0 | |
| 1,169 |
|
| 1,169 |
Contingent consideration | | | 0 | | | 0 | | | (2,800) | | | (2,800) | | | 0 | | | 0 | | | (2,800) | | | (2,800) | | | 0 | | | 0 | | | (2,950) | | | (2,950) | | | 0 | | | 0 | | | (2,800) | | | (2,800) |
Total | | $ | 0 | | $ | 0 | | $ | (1,309) |
| $ | (1,309) | | $ | 0 | | $ | 0 | | $ | (1,128) |
| $ | (1,128) | | $ | 0 | | $ | 0 | | $ | 951 |
| $ | 951 | | $ | 0 | | $ | 0 | | $ | (1,128) |
| $ | (1,128) |
29
Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, adjusted for non-observable inputs. Thus, the resulting nonrecurring fair value measurements are generally classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and, therefore, such valuations classifyare classified as Level 3.
Other real estate owned (“OREO”) is valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the customer and customer’s business. Such discounts are significant, ranging from 9.0% to 72.8%73.8% at March 31,September 30, 2023 and result in a Level 3 classification of the inputs for determining fair value. OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. The Company recovers the carrying value of OREO through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond the Company’s control and may impact the estimated fair value of a property.
Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the estimated period of net servicing income. The fair value of mortgage servicing rights is based on a valuation model incorporating inputs that market participants would use in estimating future net servicing income. Such inputs include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds and are considered to be unobservable and contribute to the Level 3 classification of mortgage servicing rights. In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of a stratummortgage servicing rights class exceeds its estimated fair value. Impairment is recognized through a valuation allowance. There is a valuation allowance of approximately $1.2 million and $0.7 million at March 31,September 30, 2023 and December 31, 2022.2022, respectively.
The Company has recorded contingent consideration liabilities that arise from acquisition activity. The contingent consideration is recorded at fair value at the date of acquisition. The valuation of contingent consideration is calculated using an income approach method, which provides an estimation of the fair value of an asset or liability based on future cash flows over a discrete projection period, discounted to present value using an appropriate rate of return. The assumptions used in the valuation calculation are based on significant unobservable inputs, therefore such valuations classifyare classified as Level 3.
The contingent consideration related to the Fringe Benefits Design of Minnesota, Inc. (“FBD”) acquisition completed in 2021 was revalued at June 30, 2023. The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $2.7 million. Key assumptions include (1) a discount rate of 6.91% applied to present value the payment, and (2) probability of achievement of retained revenue level of 37.8%. Based on the results of the June 2023 revaluation, the Company recorded a reduction to the fair value of the contingent consideration of $0.1 million which is included in the consolidated statements of income as an acquisition-related contingent consideration adjustment. The adjusted fair value at June 30, 2023 was $1.0 million. No adjustments were made to the fair value of the contingent consideration related to the FBD acquisition during the three months ended September 30, 2023.
The contingent consideration related to the Thomas Gregory Associates Insurance Brokers, Inc. (“TGA”) acquisition completed by OneGroup in 2021 was revalued at June 30, 2023. The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $3.4 million. Key assumptions include (1) a discount rate range of 6.73% to 6.94% applied to present value the payment, and (2) probability of achievement of retained revenue level of 86.1%. Based on the results of the June 2023 revaluation, the Company recorded an increase to the fair value of the contingent consideration of $1.1 million which is included in the consolidated statements of income as an acquisition-related contingent consideration adjustment. The adjusted fair value at June 30, 2023 was $2.8 million. In the third quarter of 2023, the first of the two required payments were made on the contingent consideration in the amount of $2.4 million, based on actual retained revenue results. An additional $0.1 million adjustment was recorded to adjust the fair value of the remaining contingent consideration liability, resulting in a fair value of $0.5 million at September 30, 2023.
2630
The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques. Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| |
| |
| Significant Unobservable |
|
| | |
| |
| |
| Significant Unobservable |
| ||
| | Fair Value at | | | | | | Input Range | | | Fair Value at | | | | | | Input Range | | ||||
(000’s omitted, except per loan data) | | March 31, 2023 | | Valuation Technique | | Significant Unobservable Inputs |
| (Weighted Average) | | | September 30, 2023 | | Valuation Technique | | Significant Unobservable Inputs |
| (Weighted Average) | | ||||
Individually assessed loans | | $ | 3,014 |
| Fair value of collateral |
| Estimated cost of disposal/market adjustment |
| | 27.2 | % | |||||||||||
Other real estate owned | | $ | 508 |
| Fair value of collateral |
| Estimated cost of disposal/market adjustment |
| | 9.0% - 72.8% (31.4%) | | | | 578 |
| Fair value of collateral |
| Estimated cost of disposal/market adjustment |
| | 9.0% – 73.8% (38.5%) | |
Commitments to originate real estate loans for sale | |
| 29 |
| Discounted cash flow |
| Embedded servicing value |
| | 1.0 | % | |
| 13 |
| Discounted cash flow |
| Embedded servicing value |
| | 1.0 | % |
Mortgage servicing rights | |
| 983 |
| Discounted cash flow |
| Weighted average constant prepayment rate |
| | 3.3% - 3.9% (3.3%) | | |
| 309 |
| Discounted cash flow |
| Weighted average constant prepayment rate |
| | 5.6% - 6.1% (5.6%) | |
| | | | | | | Weighted average discount rate | | | 4.2% - 4.6% (4.6%) | | | | | | | | Weighted average discount rate | | | 5.3% - 5.7% (5.7%) | |
| | | | | | | Adequate compensation | | $ | 7/loan | | | | | | | | Adequate compensation | | $ | 7/loan | |
Contingent consideration | | | (2,800) | | Discounted cash flow | | Discount rate | | | 5.9% - 6.2% (6.1%) | | | | (2,950) | | Discounted cash flow | | Discount rate | | | 6.7% - 6.9% (6.9%) | |
| | | | | | | Probability adjusted level of retained revenue | | | $3.1 million - $5.1 million | | | | | | | | Probability of achievement | | | 37.8% - 100.0% (70.9%) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Significant Unobservable | | | | | | | | | | Significant Unobservable | | ||
| | Fair Value at | | | | | | Input Range | | | Fair Value at | | | | | | Input Range | | ||||
(000's omitted, except per loan data) | | December 31, 2022 | | Valuation Technique | | Significant Unobservable Inputs | | (Weighted Average) |
| | December 31, 2022 | | Valuation Technique | | Significant Unobservable Inputs | | (Weighted Average) |
| ||||
Other real estate owned | | $ | 503 |
| Fair value of collateral |
| Estimated cost of disposal/market adjustment |
| | 9.0% - 72.8% (35.7%) | | | $ | 503 |
| Fair value of collateral |
| Estimated cost of disposal/market adjustment |
| | 9.0% - 72.8% (35.7%) | |
Commitments to originate real estate loans for sale | | | 5 | | Discounted cash flow | | Embedded servicing value | | | 1.0 | % | | | 5 | | Discounted cash flow | | Embedded servicing value | | | 1.0 | % |
Mortgage servicing rights | |
| 1,169 |
| Discounted cash flow |
| Weighted average constant prepayment rate |
| | 2.9% - 3.3% (2.9%) | | |
| 1,169 |
| Discounted cash flow |
| Weighted average constant prepayment rate |
| | 2.9% - 3.3% (2.9%) | |
| |
|
|
|
|
| Weighted average discount rate |
| | 4.6% - 4.9% (4.9%) | | |
|
|
|
|
| Weighted average discount rate |
| | 4.6% - 4.9% (4.9%) | |
| | | | | |
| Adequate compensation | | $ | 7/loan | | | | | | |
| Adequate compensation | | $ | 7/loan | |
Contingent consideration | | | (2,800) | | Discounted cash flow | | Discount rate | | | 5.9% - 6.2% (6.1%) | | | | (2,800) | | Discounted cash flow | | Discount rate | | | 5.9% - 6.2% (6.1%) | |
| | | | | | | Probability adjusted level of retained revenue | | | $3.1 million - $5.1 million | | | | | | | | Probability of achievement | | | 44.9% - 53.5% (50.1%) | |
The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date. The weighted average of the estimated cost of disposal/market adjustment for other real estate owned was calculated by dividing the total of the differences between the appraisal values of the real estate and the book values of the real estate divided by the totals of the appraisal values of the real estate. The weighted average of the constant prepayment rate for mortgage servicing rights was calculated by adding the constant prepayment rates used in each loan pool weighted by the balance in each loan pool. The weighted average of the discount rate for mortgage servicing rights was calculated by adding the discount rates used in each loan pool weighted by the balance in each loan pool. The weighted average of the discount rate for the contingent consideration was calculated by adding the discount rates used for the calculation of the fair value of each payment of contingent consideration, weighted by the amount of the payment as part of the total fair value of contingent consideration. The weighted average of the probability of achievement was determined by calculating the proportion of the probability-weighted payment of the total maximum payment, weighted by the amount of the payment as part of the total fair value of contingent consideration.
31
Certain financial instruments and all nonfinancial instruments are excluded from fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at March 31,September 30, 2023 and December 31, 2022 are presented below. The table presented below excludes other financial instruments for which the carrying value approximates fair value including cash and cash equivalents, accrued interest receivable and accrued interest payable.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 | ||||||||||||||||
|
| Carrying |
| |
| Carrying |
| |
| Carrying |
| Fair |
| Carrying |
| Fair | ||||||||
(000’s omitted) | | Value | | Fair Value | | Value | | Fair Value | | Value | | Value | | Value | | Value | ||||||||
Financial assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net loans | | $ | 8,919,165 | | $ | 8,765,403 | | $ | 8,748,335 | | $ | 8,696,185 | | $ | 9,385,121 | | $ | 8,836,726 | | $ | 8,748,335 | | $ | 8,696,185 |
Held-to-maturity securities | | | 1,090,235 | | | 1,083,330 | | | 1,079,695 | | | 1,034,795 | | | 1,125,540 | | | 990,660 | | | 1,079,695 | | | 1,034,795 |
Financial liabilities: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Deposits | |
| 13,110,672 | |
| 13,080,256 | |
| 13,012,308 | |
| 12,981,487 | |
| 13,030,788 | |
| 12,997,731 | |
| 13,012,308 | |
| 12,981,487 |
Overnight borrowings | |
| 58,400 | |
| 58,400 | |
| 768,400 | |
| 768,400 | |
| 0 | |
| 0 | |
| 768,400 | |
| 768,400 |
Securities sold under agreement to repurchase, short-term | |
| 304,607 | |
| 304,607 | |
| 346,652 | |
| 346,652 | |
| 330,252 | |
| 330,252 | |
| 346,652 | |
| 346,652 |
Other Federal Home Loan Bank borrowings | |
| 17,284 | |
| 17,131 | |
| 19,474 | |
| 19,377 | |
| 316,837 | |
| 313,111 | |
| 19,474 | |
| 19,377 |
Subordinated notes payable | |
| 0 | |
| 0 | |
| 3,249 | |
| 3,249 | |
| 0 | |
| 0 | |
| 3,249 | |
| 3,249 |
27
The following is a further description of the principal valuation methods used by the Company to estimate the fair values of its financial instruments.
Loans have been classified as a Level 3 valuation. Fair values for variable rate loans that reprice frequently are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
Held-to-maturity U.S. Treasury and agency securities have been classified as a Level 1 valuation. The fair values of held-to-maturity U.S. Treasury and agency investment securities are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques. Held-to-maturity government agency mortgage-backed securities have been classified as a Level 2 valuation. The fair values of held-to-maturity government agency mortgage-backed securities are based on current market rates for similar products.
Deposits have been classified as a Level 2 valuation. The fair value of demand deposits, interest-bearing checking deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of time deposit obligations are based on current market rates for similar products.
Borrowings and subordinated notes payable have been classified as a Level 2 valuation. The fair value of overnight borrowings and securities sold under agreement to repurchase, short-term, is the amount payable on demand at the reporting date. Fair values for other FHLB borrowings and subordinated notes payable are estimated using discounted cash flows and interest rates currently being offered on similar securities. The difference between the carrying values of subordinated notes payable, and their fair values, are not material as of the reporting dates.
Other financial assets and liabilities – Cashcash and cash equivalents have been classified as a Level 1 valuation, while accrued interest receivable and accrued interest payable have been classified as a Level 2 valuation. The fair values of each approximate the respective carrying values because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.
32
NOTE K:L: SEGMENT INFORMATION
Operating segments are components of an enterprise, which are evaluated regularly by the “chief operating decision maker” in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is the President and Chief Executive Officer of the Company. The Company has identified Banking, Employee Benefit Services and All Other as its reportable operating business segments. Community Bank, N.A. (the “Bank” or “CBNA”) operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in Upstate New York as well as Northeastern Pennsylvania, Vermont and Western Massachusetts. Employee Benefit Services, which includes the operating subsidiaries of Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC, BPAS Trust Company of Puerto Rico, Fringe Benefits Design of Minnesota, Inc. (“FBD”),FBD, Northeast Retirement Services, LLC (“NRS”), Global Trust Company, Inc. (“GTC”), and Hand Benefits & Trust Company, provides employee benefit trust, collective investment fund, retirement plan administration, fund administration, transfer agency, actuarial, VEBA/HRA, and health and welfare consulting services. The All Other segment is comprised of: (a) wealth management services including trust services provided by the personal trust unit within the Bank, broker-dealer and investment advisory services provided by Community Investment Services, Inc., The Carta Group, Inc. and OneGroup Wealth Partners, Inc. as well as asset management provided by Nottingham Advisors, Inc., and (b) full-service insurance, risk management and employee benefit services provided by OneGroup NY, Inc.OneGroup. The accounting policies used in the disclosure of business segments are the same as those described in the summary of significant accounting policies (See Note A, Summary of Significant Accounting Policies of the most recent Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023).
Information about reportable segments and reconciliation of the information to the consolidated financial statements follows:
| | | | | | | | | | | | | | | |
| | | | | Employee | | | | | | | | Consolidated | ||
(000’s omitted) |
| Banking |
| Benefit Services |
| All Other |
| Eliminations |
| Total | |||||
Three Months Ended September 30, 2023 |
| |
|
| |
|
| |
|
| |
|
| |
|
Net interest income | | $ | 107,169 | | $ | 486 | | $ | 131 | | $ | 0 | | $ | 107,786 |
Provision for credit losses | |
| 2,878 | |
| 0 | |
| 0 | |
| 0 | |
| 2,878 |
Noninterest revenues | |
| 18,448 | |
| 30,777 | |
| 20,438 | |
| (2,077) | |
| 67,586 |
Amortization of intangible assets | |
| 1,004 | |
| 1,596 | |
| 976 | |
| 0 | |
| 3,576 |
Acquisition expenses | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Acquisition-related contingent consideration adjustment | | | 0 | | | 0 | | | 80 | | | 0 | | | 80 |
Other operating expenses | |
| 78,884 | |
| 18,996 | |
| 17,045 | |
| (2,077) | |
| 112,848 |
Income before income taxes | | $ | 42,851 | | $ | 10,671 | | $ | 2,468 | | $ | 0 | | $ | 55,990 |
Assets | | $ | 15,160,821 | | $ | 237,310 | | $ | 103,721 | | $ | (115,530) | | $ | 15,386,322 |
Goodwill | | $ | 732,598 | | $ | 85,384 | | $ | 27,414 | | $ | 0 | | $ | 845,396 |
Core deposit intangibles & Other intangibles | | $ | 10,110 | | $ | 28,258 | | $ | 17,570 | | $ | 0 | | $ | 55,938 |
| | | | | | | | | | | | | | | |
Three Months Ended September 30, 2022 | |
| | |
| | |
| | |
| | |
| |
Net interest income | | $ | 110,311 | | $ | 75 | | $ | 8 | | $ | 0 | | $ | 110,394 |
Provision for credit losses | |
| 5,061 | |
| 0 | |
| 0 | |
| 0 | |
| 5,061 |
Noninterest revenues | |
| 19,427 | |
| 28,451 | |
| 19,210 | |
| (1,839) | |
| 65,249 |
Amortization of intangible assets | |
| 1,266 | |
| 1,633 | |
| 938 | |
| 0 | |
| 3,837 |
Acquisition expenses | |
| 409 | |
| 0 | |
| 0 | |
| 0 | |
| 409 |
Other operating expenses | |
| 73,554 | |
| 17,711 | |
| 14,513 | |
| (1,839) | |
| 103,939 |
Income before income taxes | | $ | 49,448 | | $ | 9,182 | | $ | 3,767 | | $ | 0 | | $ | 62,397 |
Assets | | $ | 15,373,021 | | $ | 250,784 | | $ | 102,883 | | $ | (132,141) | | $ | 15,594,547 |
Goodwill | | $ | 735,680 | | $ | 85,381 | | $ | 23,923 | | $ | 0 | | $ | 844,984 |
Core deposit intangibles & Other intangibles | | $ | 13,550 | | $ | 35,045 | | $ | 15,645 | | $ | 0 | | $ | 64,240 |
2833
Information about reportable segments and reconciliation of the information to the consolidated financial statements follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Employee | | | | | | | | Consolidated | | | | | Employee | | | | | | | | Consolidated | ||||
(000’s omitted) |
| Banking |
| Benefit Services |
| All Other |
| Eliminations |
| Total | ||||||||||||||||||||
Three Months Ended March 31, 2023 |
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||||||||
(000's omitted) |
| Banking |
| Benefit Services |
| All Other |
| Eliminations |
| Total | ||||||||||||||||||||
Nine Months Ended September 30, 2023 |
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||||||||
Net interest income | | $ | 110,682 | | $ | 254 | | $ | 94 | | $ | 0 | | $ | 111,030 | | $ | 326,621 | | $ | 1,129 | | $ | 345 | | $ | 0 | | $ | 328,095 |
Provision for credit losses | |
| 3,500 | |
| 0 | |
| 0 | |
| 0 | |
| 3,500 | |
| 7,130 | |
| 0 | |
| 0 | |
| 0 | |
| 7,130 |
Loss on sales of investment securities | | | (52,329) | | | 0 | | | 0 | | | 0 | | | (52,329) | |
| (52,329) | |
| 0 | |
| 0 | |
| 0 | |
| (52,329) |
Gain on debt extinguishment | | | 242 | | | 0 | | | 0 | | | 0 | | | 242 | | | 242 | | | 0 | | | 0 | | | 0 | | | 242 |
Other noninterest revenues | | | 17,362 | | | 30,221 | | | 20,228 | | | (2,229) | | | 65,582 | | | 54,397 | | | 90,416 | | | 60,764 | | | (6,425) | | | 199,152 |
Amortization of intangible assets | |
| 1,206 | |
| 1,633 | |
| 828 | |
| 0 | |
| 3,667 | |
| 3,370 | |
| 4,860 | |
| 2,718 | |
| 0 | |
| 10,948 |
Acquisition expenses | |
| 17 | |
| 0 | |
| 40 | |
| 0 | |
| 57 | |
| 16 | |
| 0 | |
| 40 | |
| 0 | |
| 56 |
Acquisition-related contingent consideration adjustment | | | 0 | | | (100) | | | 1,180 | | | 0 | | | 1,080 | |||||||||||||||
Other operating expenses | |
| 78,266 | |
| 18,964 | |
| 15,327 | |
| (2,229) | |
| 110,328 | |
| 232,647 | |
| 56,709 | |
| 48,579 | |
| (6,425) | |
| 331,510 |
Income (loss) before income taxes | | $ | (7,032) | | $ | 9,878 | | $ | 4,127 | | $ | 0 | | $ | 6,973 | |||||||||||||||
Assets | | $ | 15,040,487 | | $ | 229,091 | | $ | 98,145 | | $ | (111,770) | | $ | 15,255,953 | |||||||||||||||
Goodwill | | $ | 733,064 | | $ | 85,384 | | $ | 24,488 | | $ | 0 | | $ | 842,936 | |||||||||||||||
Core deposit intangibles & Other intangibles | | $ | 11,629 | | $ | 31,778 | | $ | 14,571 | | $ | 0 | | $ | 57,978 | |||||||||||||||
Income before income taxes | | $ | 85,768 | | $ | 30,076 | | $ | 8,592 | | $ | 0 | | $ | 124,436 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | |
| | |
| | |
| | |
| | |
| | |||||||||||||||
Nine Months Ended September 30, 2022 | |
| | |
| | |
| | |
| | |
| | |||||||||||||||
Net interest income | | $ | 94,798 | | $ | 68 | | $ | 6 | | $ | 0 | | $ | 94,872 | | $ | 308,177 | | $ | 210 | | $ | 20 | | $ | 0 | | $ | 308,407 |
Provision for credit losses | |
| 906 | |
| 0 | |
| 0 | |
| 0 | |
| 906 | |
| 12,005 | |
| 0 | |
| 0 | |
| 0 | |
| 12,005 |
Noninterest revenues | |
| 18,008 | |
| 30,188 | |
| 19,540 | |
| (2,063) | |
| 65,673 | |
| 55,634 | |
| 88,093 | |
| 57,065 | |
| (5,773) | |
| 195,019 |
Amortization of intangible assets | |
| 1,045 | |
| 1,671 | |
| 1,016 | |
| 0 | |
| 3,732 | |
| 3,506 | |
| 4,974 | |
| 2,940 | |
| 0 | |
| 11,420 |
Acquisition expenses | |
| 298 | |
| 1 | |
| 0 | |
| 0 | |
| 299 | |
| 4,665 | |
| 3 | |
| 0 | |
| 0 | |
| 4,668 |
Acquisition-related contingent consideration adjustment | | | 0 | | | (100) | | | 500 | | | 0 | | | 400 | |||||||||||||||
Other operating expenses | |
| 66,656 | |
| 17,597 | |
| 13,586 | |
| (2,063) | |
| 95,776 | |
| 212,616 | |
| 53,026 | |
| 42,059 | |
| (5,773) | |
| 301,928 |
Income before income taxes | | $ | 43,901 | | $ | 10,987 | | $ | 4,944 | | $ | 0 | | $ | 59,832 | | $ | 131,019 | | $ | 30,400 | | $ | 11,586 | | $ | 0 | | $ | 173,005 |
Assets | | $ | 15,402,218 | | $ | 260,166 | | $ | 97,945 | | $ | (134,446) | | $ | 15,625,883 | |||||||||||||||
Goodwill | | $ | 689,868 | | $ | 85,292 | | $ | 23,920 | | $ | 0 | | $ | 799,080 | |||||||||||||||
Core deposit intangibles & Other intangibles | | $ | 8,041 | | $ | 38,348 | | $ | 17,569 | | $ | 0 | | $ | 63,958 |
2934
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) primarily reviews the financial condition and results of operations of Community Bank System, Inc. (the “Company” or “CBSI”) as of and for the three and nine months ended March 31,September 30, 2023 and 2022, although in some circumstances the fourth quartersecond and first quarters of 2022 is2023 are also discussed in order to more fully explain recent trends. The following discussion and analysis should be read in conjunction with the Company’sCompany's Consolidated Financial Statements and related notes that appear on pages 3 through 29.34. All references in the discussion of the financial condition and results of operations refer to the consolidated position and results of the Company and its subsidiaries taken as a whole. Unless otherwise noted, the term “this year” and equivalent terms refers to results in calendar year 2023, “last year” and equivalent terms refer to calendar year 2022, “first“third quarter” refers to the three months ended March 31,September 30, 2023, “YTD” refers to the nine months ended September 30, 2023, and earnings per share (“EPS”) figures refer to diluted EPS.
This MD&A contains certain forward-looking statements with respect to the financial condition, results of operations, and business of the Company. 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 48.57.
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 believes that the critical accounting estimates include the allowance for credit losses, actuarial assumptions associated with the pension, post-retirement and other employee benefit plans, the provision for income taxes, investment valuation, the carrying value of goodwill and other intangible assets and acquired loan valuations. A summary of the accounting policies used by management is disclosed in the MD&A on pages 31-33 and Note A, “Summary of Significant Accounting Policies” on pages 76-87 of the most recent Form 10-K (fiscal year ended December 31, 2022) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023, and there have been no material changes. A summary of new accounting policies used by management is disclosed in Note C, “Accounting“Significant Accounting Policies” beginning on page 1112 of this Form 10-Q.
35
Supplemental Reporting of Non-GAAP Results of Operations
The Company also provides supplemental reporting of its results on an “operating,” “adjusted” or “tangible” basis, from which it excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts), accretion on acquired non-purchased credit deteriorated (“PCD”) loans, acquisition expenses, acquisition-related contingent consideration adjustment, acquisition-related provision for credit losses, unrealized loss (gain) on equity securities, realized loss on investment securities and gain on debt extinguishment. Although these items are non-GAAP measures, the Company’s management believes this information helps investors and analysts measure underlying core performance and improves comparability to other organizations that have not engaged in acquisitions. In addition, the Company provides supplemental reporting for “adjusted pre-tax, pre-provision net revenues,” which excludes the provision for credit losses, acquisition expenses, acquisition-related contingent consideration adjustment, unrealized loss (gain) on equity securities, realized loss on investment securities and gain on debt extinguishment from income before income taxes. Although adjusted pre-tax, pre-provision net revenue is a non-GAAP measure, the Company’s management believes this information helps investors and analysts measure and compare the Company’s performance through a credit cycle by excluding the volatility in the provision for credit losses associated with the impact of CECL, and helps investors and analysts measure underlying core performance and improves comparability to other organizations that have not engaged in acquisitions. The Company also provides supplemental reporting of its net interest margin on a “fully tax-equivalent” basis, which includes an adjustment to net interest income that represents taxes that would have been paid had nontaxable investment securities and loans been taxable. Although fully tax-equivalent net interest margin is a non-GAAP measure, the Company’s management believes this information helps enhance comparability of the performance of assets that have different tax liabilities. Diluted earnings per share were $0.11$0.82 in the firstthird quarter of 2023, compared to $0.86 indown $0.08, or 8.9%, from the firstthird quarter of 2022, a decrease of $0.75, or 87.2%.2022. Diluted adjusted net earnings per share, a non-GAAP measure, were $0.90$0.86 in the firstthird quarter of 2023, compared to $0.91$0.94 in the firstthird quarter of 2022, a decrease of $0.01,an $0.08 per share, or 1.1%.8.5%, decrease. Adjusted pre-tax, pre-provision net revenue, per share, a non-GAAP measure, was $1.16$1.10 per share in the firstthird quarter of 2023, up $0.04,down $0.15, or 3.6%12.0%, from the firstthird quarter of 2022. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11.
30
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 benefits administration, 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, insurancetrust administration and wealth management services through its Community Bank Wealth Management Group operating unit and insurance services through its OneGroup NY, Inc. (“OneGroup”) operating units.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) manage an investment securities portfolio to complement the Company’s loan and deposit strategies and optimizemitigate interest rate risk, yield and liquidity risk and optimize net interest income generation, (iv) increase the noninterest component of total revenues through growth in existing banking, employee benefit, insurance and wealth management services business units, and the acquisition of additional financial services and banking businesses, and (v) utilize technology to deliver customer-responsive products and services and improve efficiencies.
Significant factors reviewed by management to evaluate achievement of the Company’s operating objectives and its operating results and financial condition include, but are not limited to: net income and earnings per share; return on assets and equity; components of net interest margin; noninterest revenues; noninterest expenses; asset quality;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.
36
FirstThird quarter 2023 net income decreased $41.3$4.6 million, asor 9.4%, compared to the firstthird quarter of 2022, andwhile YTD net income decreased $37.3 million, or 27.5% compared to the equivalent 2022 timeframe. Earnings per share of $0.82 for the third quarter of 2023 was $0.08 less than the third quarter of 2022, while 2023 YTD earnings per share of $0.11 for the first quarter of 2023 decreased $0.75 from the first quarter of 2022.$1.82 was $0.67 lower than 2022 YTD earnings per share. The decrease in net income and earnings per share between the quarterly periods was due to an increase in operating expenses and a decrease in net interest income, partially offset by an increase in noninterest revenues and decreases in the provision for the quartercredit losses, income taxes and fully-diluted shares outstanding. The YTD decrease in net income and earnings per share was primarily the result of a $52.3 million pre-tax realized loss on the sale of certain available-for-sale investment securities during the first quarter of 2023 in connection with a balance sheet repositioning executed in order to reduce overnight borrowings and improve net interest income and net interest margin. The sales were completed in January and February 2023 and were unrelated topreceded the negative developments in the banking industry that occurred in March 2023. In addition,The YTD decrease in net income and earnings per share was also reflective of increases in operating expenses, net interest income and noninterest revenues and decreases in income taxes, the provision for credit losses and operating expenses were offset by increases in net interest income and noninterest revenues, lower income taxes and a decrease in fully-diluted shares outstanding. First
Third quarter and YTD net income adjusted to exclude theacquisition expenses, acquisition-related contingent consideration adjustments, acquisition-related provision for credit losses, gain on debt extinguishment, realized loss on sales of investment securities gain on debt extinguishment, acquisition expenses and the unrealized gains and lossesloss on equity securities (“operating net income”), a non-GAAP measure, decreased $0.5$4.8 million, or 9.8%, as compared to the firstthird quarter of 2022 and decreased $2.5 million, or 1.7%, compared to September YTD 2022. Earnings per share adjusted to exclude theacquisition expenses, acquisition-related contingent consideration adjustment, acquisition-related provision for credit losses, gain on debt extinguishment, realized loss on sales of investment securities gain on debt extinguishment, acquisition expenses and the unrealized gains and lossesloss on equity securities (“operating earnings per share”), a non-GAAP measure, of $0.86$0.82 for the third quarter decreased $0.08 compared to the third quarter of 2022. Operating earnings per share of $2.60 for the first quarternine months of 2023 decreased $0.01$0.02 compared to the first quarterprior year period. Reconciliations of 2022.GAAP amounts with corresponding non-GAAP amounts are presented in Table 11.
The Company’s deposit base and liquidity position continues to be strong, as the Company maintained total immediately available liquidity sources of $4.69$4.81 billion at the end of the firstthird quarter of 2023, overmore than double its estimated uninsured deposits, net of collateralized and intercompany deposits. Estimated insured deposits, whichnet of collateralized and intercompany deposits, represent lessgreater than 20%80% of the same quarter’sthird quarter ending total deposits. The Company’s deposit base is well diversified across customer segments, which as of March 31,September 30, 2023 is comprised of approximately 63%61% consumer, 25%26% business and 12%13% municipal, and broadly dispersed with an average deposit balance per account balance under $20,000. Since the Federal Reserve began raising the federal funds rate on March 17, 2022 in the current hiking cycle in an effort to combat inflation, the cycle-to-date deposit beta for the Company was 5%13% and the cycle-to-date total funding beta was 8%15%, reflective of a high proportion of non-interest bearing deposits, representing over 30%approximately 29% of total deposits, and the composition and stability of the customer base. In addition, 74%more than 70% of the Company’s total deposits were in noninterest checking, interest checking and savings accounts at the end of the first quarter. Thethird quarter, and the Company does not currently utilize brokered or wholesale depositsdeposits.
Net interest margin increased seven basis points between the third quarter of 2022 and total depositsthe third quarter of 2023 and increased approximately 1% from the end of the prior quarter.
31
27 basis points on a YTD basis. Fully tax-equivalent net interest margin, a non-GAAP measure, also increased 47seven basis points between the firstthird quarter of 2022 and the firstthird quarter of 2023. Loans2023 and increased 28 basis points on a YTD basis. Loan balances increased on both an average and ending basis as compared to the prior year firstthird quarter and YTD period, primarily reflective of continued strong organic loan growth along with the second quarter 2022 acquisition of Elmira Savings Bank (“Elmira”). Deposits which favorably impacted the average YTD balance growth. Deposit balances decreased on both an average and ending basis as compared to the firstthird quarter of 2022 and YTD due in part to outflows driven by the continued spend down of funds accumulated during the pandemic with higher customer expenditure levels in the inflationary environment. While deposits also declined on an average basisenvironment, as compared to the fourth quarter of 2022, depositswell as increased rate competition from other banks and non-depository financial institutions. However, deposit balances were up on an ending basis overfrom the same period due to growth in public fund deposits.end of the prior quarter and the end of the prior year. The yield on average interest earning assets increased 8276 basis points compared to the prior year firstthird quarter and 81 basis points compared to the prior YTD period, as the yieldyields on average loans, investments and yield on average investments bothinterest-earning cash equivalents all improved. The yield on average loans for the firstthird quarter increased 6070 basis points compared to the firstthird quarter of 2022 and 67 basis points between comparable YTD periods, driven by market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and a high level of new loan originations. The yield on average investments, including cash equivalents, increased 4919 basis points compared to the prior year,year’s third quarter and 35 basis points on a YTD basis, which also benefitted from rising market interest rates as well as a change inand reflected the miximpact of the sale of certain available-for-sale investment securities during the first quarter of 2023 and cash equivalents.the maturity of certain investment securities between the periods. The Company’s total cost of funds increased 3572 basis points from the year earlier period,last year’s third quarter and 55 basis points YTD, as the rate paid on interest-bearing deposits increased 34 basis points and the rate paid on borrowings increased 245 basis points, impacted by the Company transitioning to an overnight wholesale borrowing position between the periods to meet its funding needs.both increased.
37
In order to reduce the amount of overnight wholesale borrowings bearing rising and comparatively high variable interest rates and provide the Company with greater flexibility in managing balance sheet growth and deposit funding, the Company executed a balance sheet repositioning in the first quarter of 2023. The Company sold certain lower-yielding available-for-sale debt securities with a book value of $786.1 million and recognized a $52.3 million pre-tax realized loss on the sale that negatively impacted earnings by $0.75 per share. Proceeds from the sale of $733.8 million were redeployed entirely towards paying off existing wholesale borrowings with a cost of funds that was approximately 320 basis points higher than the yield earned on the securities that were sold. The Company estimates that the loss will be recouped within approximately two years.
The first quarter 2023 provision for credit losses of $3.5$2.9 million was $2.6for the third quarter and $7.1 million higherfor YTD 2023 were $2.2 million and $4.9 million lower than the provision for credit losses of $0.9 million duringfor the firstcomparable prior year periods, respectively. The third quarter of 2022,and YTD 2023 provision for credit losses were reflective of a weakerstabilizing economic outlook combined with an increase in loans outstanding. Comparatively,outstanding while the third quarter and YTD 2022 provision for credit losses was reflective of a moderate deterioration in the first quarter of 2022, economic forecasts remained generally stable andoutlook, an increase in loans outstanding grew at a slower rate.and $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition. Asset quality remained strong as firstduring the third quarter of 2023. The nonperforming loan ratio of 0.39% at September 30, 2023 nonperformingwas only one basis point higher than the ratio at September 30, 2022 and three basis points above the ratio one quarter prior. The total delinquent loan ratios decreased in comparison toratio remained below historical averages at 0.90%, but increased slightly from 0.71% at the firstend of the third quarter of 2022 whileand 0.83% at the end of the prior quarter. Net charge-offs continued to be well below long-term average levels at $1.2 million, or an annualized 0.05% of average loans, for the third quarter and $3.5 million, or an annualized 0.05% of average loans, for the first nine months of 2023, compared to net charge-offs of $1.5$0.4 million, remained low ator an annualized 0.07%0.02% of average loans, but were $1.0for the prior year third quarter and $1.3 million, higher than the $0.5 million inor an annualized 0.02% of average loans, for the first quarternine months of 2022.
Banking noninterest revenues, comprised of deposit service fees, mortgage banking and other banking services revenues, were down $0.6$0.9 million, or 5.1%, as compared to the prior year’s firstthird quarter asand were down $1.1 million, or 2.1%, between the comparable YTD periods. The Company implemented certain deposit fee changes, including the elimination of consumer nonsufficient and unavailable funds fees on personal accounts late in the fourth quarter of 2022. These changes ensure that the Company continues to provide customers with affordable and competitive banking options. Financial services business revenues, comprised of employee benefit services, insurance services and wealth management services revenues, were up $0.5$3.3 million, or 7.1%, as compared to the prior year’s firstthird quarter dueand up $5.3 million, or 3.7%, compared to a $1.1 millionthe prior YTD period. The increase in quarterly financial services business revenues reflected growth in all of the three business units while the YTD increase reflected increases in insurance services and employee benefit services revenues that were partially offset by declinesa slight decline in employee benefit services and wealth management services revenues.
Noninterest expenses increased $14.2$8.3 million, or 14.3%7.7%, between the firstthird quarter of 2022 and the firstthird quarter of 2023 and increased $25.2 million, or 7.9%, between September YTD 2022 and September YTD 2023. The YTD increase was primarily due to a $9.8$17.0 million, or 8.8%, increase in salaries and employee benefits driven by increases in merit severance and incentive-relatedmarket-related employee wages, including minimum wage-related compression on the lower end of the Company’s pay scale, acquisition-related and other additions to staffing, higher payroll taxes and higher employee benefit-related expenses including higher medical expenses, and certain executive retirement-related expenses. The remaining net increase in other expense categories werewas due to various factors including general inflationary pressures, larger FDIC insurance expenses due in part to an increase in the base assessment rate effective on January 1, 2023, higher legal and incremental expensesprofessional fees associated with operatingvarious matters, an expanded franchise subsequentincrease in data processing and communications expenses due to the Elmira acquisitionCompany’s continued investment in customer-facing and back office digital technologies and higher business development and marketing expenses due to the Company’s investment in digital marketing initiatives and higher levels of targeted advertisements intended to generate deposits. The Company has initiated a plan to optimize the retail customer service workforce which will temporarily reduce branch-related operating expenses, and reinvest in the second quarter of 2022.retail network through de novo branch expansion in new, more densely populated markets throughout the Company’s geographic footprint.
On July 26, 2023, the SEC finalized rules requiring registrants to disclose material cybersecurity incidents that they experience on Form 8-K and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. Annual disclosures will be required in CBSI’s Annual Report on Form 10-K for the year ended 2023. The Form 8-K disclosure requirements will become effective beginning on December 18, 2023.
3238
Net Income and Profitability
As shown in Table 1, net income for the firstthird quarter and September YTD of $5.8$44.1 million and $98.2 million, respectively, decreased $41.3$4.6 million, or 87.7%9.4%, as compared to the firstthird quarter of 2022 and decreased $37.3 million, or 27.5%, compared to September YTD 2022. Earnings per share of $0.11$0.82 for the third quarter was $0.08 lower than the third quarter of 2022, while earnings per share for the first quarternine months of 2023 decreased $0.75 compared toof $1.82 was $0.67 lower than the first quarternine months of 2022. The decrease in net income and earnings per share for the quarter was reflective of an increase in operating expenses and a decrease in net interest income, partially offset by an increase in noninterest revenues and decreases in the provision for credit losses, income taxes and fully-diluted shares outstanding. The decrease in net income and earnings per share for the YTD period as compared to the prior year was the result of a decrease in noninterest revenues, primarily due to the impact of the previously mentioned strategic balance sheet repositioning executed during the quarter to provide the Company with greater flexibility in managing balance sheet growth and deposit funding. During the quarter but prior to the negative developments in the banking industry that occurred in March 2023, the Company sold certain available-for-sale investment securities and used the proceeds to pay down overnight borrowings with rising and comparatively high variable interest rates. As a result, a $52.3 million pre-tax realized loss on thesales of investment securities sales was recognized duringin the first quarter which negatively impacted GAAP earnings per shareof 2023 as part of a balance sheet repositioning, as well as an increase in operating expenses, partially offset by $0.75. In addition, increasesan increase in net interest income and decreases in the provision for credit losses, and operating expenses were offset by increases in net interest income and noninterest revenues, lower income taxes and a decrease in fully-diluted shares outstanding. Operating net income, a non-GAAP measure, of $46.8$44.2 million and $140.2 million for the firstthird quarter and September YTD, respectively, decreased $0.5$4.8 million, or 1.0%9.8%, as compared to the firstthird quarter of 2022 and decreased $2.5 million, or 1.7%, compared to September YTD 2022. Operating earnings per share, a non-GAAP measure, of $0.86$0.82 for the third quarter was down $0.08 compared to the third quarter of 2022, while operating earnings per share of $2.60 for the first quarternine months of 2023 was down $0.01$0.02 compared to the first quarternine months of 2022. See Table 11 for Reconciliation of GAAP to Non-GAAP Measures.
As reflected in Table 1, firstthird quarter net interest income of $111.0$107.8 million was up $16.2down $2.6 million, or 17.0%2.4%, from the comparable prior year period. The improvement wasquarterly decrease resulted from a result ofdecrease in interest-earning asset balances and an increase in the tax equivalentrate paid on interest-bearing liabilities, partially offset by an increase in the yield on interest-earning assets and a decrease in interest-bearing liability balances. Net interest income for the first nine months of 2023 increased $19.7 million, or 6.4%, versus the first nine months of 2022. The year-over-year improvement resulted from an increase in the yield on average interest-earning assetsasset balances, partially offset by a decrease in average interest-earning assetsasset balances and increases in the cost and average balance of interest-bearing liabilities.
The provision for credit losses of $3.5 million for the firstthird quarter of 2023 increased $2.6$2.9 million and September YTD of $7.1 million decreased $2.2 million and $4.9 million as compared to the $0.9 millionthird quarter and first nine months of 2022, respectively. The third quarter and YTD 2023 provision for credit losses in the first quarterwas reflective of 2022, a resultstable economic outlook, continued low levels of net charge-offs, delinquent loans and nonperforming loans and an increase in loans outstanding betweenoutstanding. The YTD 2022 provision for credit losses included $3.9 million of acquisition-related provision for credit losses due to the periodsElmira acquisition.
Third quarter and weaker economic forecasts.
First quarteryear-to-date noninterest revenues were $13.5$67.6 million down $52.2and $147.1 million, respectively, up $2.3 million, or 79.5%3.6%, from the third quarter of 2022 and down $48.0 million, or 24.6%, from the first quarternine months of 2022. The increase compared to the prior year’s third quarter was a result of increases in employee benefit services revenue, insurance services revenue, other banking revenues, wealth management services revenues and debit interchange and ATM fees, partially offset by decreases in deposit service charges and fees, mortgage banking revenues and a larger unrealized loss on equity securities. The YTD decrease was primarily due to the recognitionincurrence of the previously mentioned $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities associated with the Company’s first quarter 2023 balance sheet repositioning. Totalrepositioning, as well as decreases in deposit service charges and fees, debit interchange and ATM fees, wealth management services revenues, excluding net realizedmortgage banking revenues and unrealized loss on equity securities, gainspartially offset by increases in insurance services revenues, employee benefit services revenues and lossesother banking revenues and a realization of a gain on debt extinguishment were $176.6 million in the first quarter of 2023, an increase of $16.1 million, or 10.0%, from the prior year’s first quarter. This increase was driven by a $16.2 million, or 17.0%, increase in net interest income and a $0.5 million, or 1.1%, increase in financial services business revenues, offset, in part, by a $0.6 million, or 3.6%, decrease in banking noninterest revenues.extinguishment.
Noninterest expenses of $114.0$116.5 million and $343.6 million for the firstthird quarter and September YTD periods, respectively, reflected an increase of $14.2$8.3 million, or 14.3%7.7%, from the third quarter of 2022 and an increase of $25.2 million, or 7.9%, from the first quarternine months of 2022. The increase in noninterest expenses for the quarter wasquarterly and YTD periods were due to increases in salaries and employee benefits, other expenses, legal and professional fees, data processing and communications expenses, business development and marketing expenses and occupancylegal and equipment expenses,professional fees, partially offset by decreases in acquisition-related expenses and amortization of intangible assets. Excluding acquisition-related expenses comprised of contingent consideration adjustments and integration-related expenses, 2023 operating expenses were $8.6 million, or 8.0%, higher for the third quarter and $29.1 million, or 9.3%, higher for the year-to-date timeframe.
IncomeThe effective income tax expense decreased $11.6 million betweenrates were 21.2% and 21.1% for third quarter and YTD 2023, respectively, as compared to 22.0% and 21.6% for the comparable quarters asprior year periods. The decline in the quarterly and YTD effective income tax rates were primarily attributable to a decrease in the full-year 2023 pre-tax income decreased $52.9 million, due primarily toprojection as a result of the realized loss on investment security sales recognized in the salefirst quarter of certain available-for-sale securities previously mentioned.2023.
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A condensed income statement is as follows:
Table 1: Condensed Income Statements
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||
| | March 31, | | September 30, | | September 30, | ||||||||||||
(000’s omitted, except per share data) |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Net interest income | | $ | 111,030 | | $ | 94,872 | | $ | 107,786 | | $ | 110,394 | | $ | 328,095 | | $ | 308,407 |
Provision for credit losses | | | 3,500 | | | 906 | | | 2,878 | | | 5,061 | | | 7,130 | | | 12,005 |
Loss on sales of investment securities | | | (52,329) | | | 0 | | | 0 | | | 0 | | | (52,329) | | | 0 |
Noninterest revenues excluding loss on sales of investment securities | |
| 65,824 | |
| 65,673 | |
| 67,586 | |
| 65,249 | |
| 199,394 | |
| 195,019 |
Noninterest expenses | | | 114,052 | | | 99,807 | | | 116,504 | | | 108,185 | | | 343,594 | | | 318,416 |
Income before income taxes | |
| 6,973 | |
| 59,832 | |
| 55,990 | |
| 62,397 | |
| 124,436 | |
| 173,005 |
Income taxes | |
| 1,175 | |
| 12,777 | |
| 11,861 | |
| 13,706 | |
| 26,218 | |
| 37,454 |
Net income | | $ | 5,798 | | $ | 47,055 | | $ | 44,129 | | $ | 48,691 | | $ | 98,218 | | $ | 135,551 |
| | | | | | | | | | | | | | | | | | |
Diluted weighted average common shares outstanding | |
| 54,207 | |
| 54,515 | |
| 53,798 | |
| 54,290 | |
| 53,988 | |
| 54,396 |
Diluted earnings per share | | $ | 0.11 | | $ | 0.86 | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.49 |
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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.
As shown in Table 2,2a, net interest income (with nontaxable income converted to a fully tax-equivalent basis)basis, a non-GAAP measure) for the firstthird quarter was $112.1$108.8 million, a $16.4decrease of $2.7 million, or 17.2%2.4%, increase fromcompared to the same period last year. This was driven by a 100 basis point increase in the rate paid on average interest-bearing liabilities and a $666.2 million decrease in average interest-earning assets, partially offset by a 76 basis point increase in the yield on average interest-earnings assets and a $42.6 million decrease in average interest-bearing liabilities in comparison to the third quarter of 2022. As reflected in Table 3 for the quarter, net interest income was unfavorably impacted by $24.3 million due to the increase in the rate paid on average interest-bearing liabilities and $5.5 million due to the volume decrease in interest-earning assets, partially offset by the favorable impact on net interest income of $27.1 million due to the increase in the yield on average interest-earning assets. September YTD net interest income (with nontaxable income converted to a fully tax-equivalent basis), as reflected in Table 2b, of $331.3 million, increased $19.9 million, or 6.4%, from the year-earlier period. The September YTD increase resulted from an 8281 basis point increase in the yield on average interest-earning assets, partially offset by a 50$58.4 million increase in average interest-bearing liabilities, a $412.0 million decrease in average interest-earning assets and a 77 basis point increase in the average rate paid on interest-bearing liabilities. As reflected in Table 3 for September YTD, the increase in the yield on average interest-earning assets had a favorable impact on net interest income of $85.0 million, partially offset by the unfavorable impacts on net interest income of $9.4 million due to the volume decrease in average interest-earning assets, $55.6 million due to the increase in the rate paid on average interest-bearing liabilities and $0.1 million due to the increase in average interest-bearing liabilities.
Net interest margin of 3.07% and fully tax-equivalent net interest margin (non-GAAP) of 3.10% for the third quarter of 2023 were both seven basis points higher as compared to the third quarter of 2022. The increase was the result of a 76 basis point increase in the interest-earning asset yield and the decreases in average interest-earning asset balances and overnight borrowings driven by the sales and maturities of certain available-for-sale investment securities between the periods, partially offset by a 100 basis point increase in the rate paid on average interest-bearing liabilities, a $31.8 million decrease in average interest-earnings assets and a $223.5 million increase in average interest-bearing liabilities in comparison to the first quarter of 2022. As reflected in Table 3, the favorable net interest income impact of the increase in the yield on average interest-earning assets of $28.7 million was partially offset by the unfavorable impacts of the increase in the rate paid on average interest-bearing liabilities of $12.0 million, the volume decrease in average interest-earning assets of $0.2 million and the volume increase in average interest-bearing liabilities of $0.1 million. The netliabilities. Net interest margin of 3.20%3.13% for the first quarternine months of 2023 was 4727 basis points higher than the comparable period of 2022 while the fully tax-equivalent net interest margin (non-GAAP) of 3.16% for the first nine months of 2023 was 28 basis points higher than the comparable period of 2022. The yield on interest-earning assets increased 81 basis points, while the rate on interest-bearing liabilities increased by 77 basis points for the first nine months of 2023 as compared to the prior year period. The decline in noninterest and low-rate checking deposit balances also had an adverse impact on the net interest margin and fully tax-equivalent net interest margin (non-GAAP) for both periods.
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The higher76 basis point increase in the yield on average interest-earning assets for the quarter was the result of increases in both the yield on average loans and the yield on average investments, including cash equivalents. The yield on average loans for the firstthird quarter increased by 6070 basis points compared to the firstthird quarter of 2022,2022. The third quarter of 2023 yield on average investments, including cash equivalents, increased 19 basis points compared to the prior year. The 81 basis point increase in the yield on interest-earning assets for the first nine months of 2023 was the result of a 67 basis point increase in the yield on average loans and a 35 basis point increase in the yield on average investments, including cash equivalents, compared to the prior YTD period. The increase in loan yields were reflective of market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate and a high level of new loan originations. The first quarter of 2023 yield on average investments, including cash equivalents, increased 49 basis points compared to the prior year, asincrease in investment yields were driven by market interest rates increased, whilerate increases and the average balancesales and maturities of cash equivalents decreased significantly due in part to the funding of strong organic loan growth. The current quarter’s yield on average investments, excluding cash equivalents, increased 27 basis points, while the yield on average cash equivalents increased 330 basis points compared tocertain available-for-sale investment securities during the first quarternine months of 2022.2023.
The first quarter of 2023 rate paid on average interest-bearing liabilities increased 50by 100 basis points compared to the prior year quarter due to a 34as the average rate paid on interest-bearing deposits increased 92 basis point increase inpoints and the average rate paid on external borrowings increased 200 basis points from the comparable prior period. For the first nine months of 2023, the rate paid on average interest-bearing liabilities increased by 77 basis points from the comparable prior year period as the rate paid on average interest-bearing deposits increased 67 basis points and the rate paid on average external borrowings increased 212 basis points. The rate paid on average interest-bearing deposits increased as interest rates on certain interest-bearing deposits were raised in response to market conditions, and a 245 basis point increase in the rate paid on average borrowings.conditions. The increase in the rate paid oncost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight and term borrowings to fund loan growth, as well as the increase in the rates paid on customer repurchase agreements in response to market conditions.
The Company expects deposit costs to continue to increase to reflect the rapid changes in market interest rates that have occurred over the past year and that the cycle-to-date deposit beta will increase over current levels. The expected increase in deposit beta is reflective of the Company’s strategy to maintain a strong core deposit base and continue to provide competitive offerings to customers.customers, as well as heightened competition for deposit funding in the higher rate environment. The Company has been and will be proactive in managing customer relationships with depositors, particularly largerlarge balance consumer, commercial and municipal customers, as a key component of this strategy. In addition, the Company expects funding costs to increase due to higher deposit costs, in part due to the continued migration from noninterest and low rate products to higher rate products, and potentially a greater reliance on highercomparatively high cost wholesale borrowings.
The third quarter and YTD average book balance of investments, in the first quarter, including cash equivalents, decreased $1.53$1.64 billion and $1.68 billion, respectively, as compared to the corresponding prior year periodperiods, primarily due to a $903.1declines in the investment securities portfolio driven by scheduled maturities and the sales of certain available-for-sale investment securities in connection with the Company’s first quarter balance sheet repositioning. Investment security sales, maturities, calls and principal payments outpaced purchases during the third quarter and YTD periods. The cash equivalents component of average earning assets increased $27.5 million decreaseand decreased $436.5 million for the third quarter and YTD periods, respectively, compared to the prior year periods. The YTD decline in average cash equivalents was due in part to the funding of strong organic loan growth. Investment sales, maturities, calls and principal payments outpaced purchases during the first quarter of 2023 as the Company executed a balance sheet repositioning as described previously. Average loan balances were $1.49increased $970.3 million for the quarter and $1.27 billion greater thanYTD as compared to the prior year’s first quarter balances with increases in all five loan portfoliosyear, due to high levels of organic growth and the impact of the Elmira acquisition.
Average interest-bearing deposits decreased $176.1$180.4 million betweencompared to the firstprior year quarter of 2022 and $190.8 million compared to the first quarter of 2023 with declinesprior YTD period. The quarterly and YTD decreases in average interest-bearing deposits were due to decreases in interest checking, money market and interest checkingsavings deposits, partially offset by increasesan increase in savings and time deposits. The decrease in deposit balances were due in part to outflows driven by higher customer expenditure levels in the inflationary environment. The average borrowing balance, including borrowings at the Federal Home Loan Bank of New York and the Federal Home Loan Bank of Boston (collectively referred to as “FHLB”), subordinated notes payable and securities sold under agreement to repurchase (customer repurchase agreements), increased $399.6$137.9 million compared toand $249.2 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 a $362.5 millionan increase in average overnight and term borrowings to meet the Company’s funding needs. Overnightneeds, including $300.0 million of term FHLB borrowings endedsecured during the firstthird quarter of 2023 at $58.4 million, with the significant decrease being attributable to the aforementioned balance sheet repositioning executed by the Company.a weighted average rate of 4.69%.
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Table 2Tables 2a and 2b below sets forth information related to average interest-earning assets and interest-bearing liabilities and their associated yields and rates for the periods indicated. Interest income and yields are on a fully tax-equivalent basis (“FTE”) using a marginal income tax rate of 24.3%24.2% in both 2023 and 24.1% in 2022. 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 marks. Average loan balances include acquired loan purchase discounts and premiums, nonaccrual loans and loans held for sale.
Table 2:2a: Quarterly Average Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended |
| | Three Months Ended | | | Three Months Ended |
| ||||||||||||||||||||||||
| | March 31, 2023 | | | March 31, 2022 |
| | September 30, 2023 | | | September 30, 2022 |
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| Avg. | | | |
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| Avg. |
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| Avg. | |
| | Average | | | |
| Yield/Rate |
| | Average | | | |
| Yield/Rate | | | Average | | | |
| Yield/Rate |
| | Average | | | |
| Yield/Rate | | ||||
(000’s omitted except yields and rates) |
| Balance |
| Interest |
| Paid |
| | Balance |
| Interest |
| Paid | |
| Balance |
| Interest |
| Paid |
| | Balance |
| Interest |
| Paid | | ||||||||
Interest-earning assets: | | |
|
| |
|
|
|
| | |
|
| |
|
|
| | | |
|
| |
|
|
|
| | |
|
| |
|
|
| |
Cash equivalents | | $ | 27,775 | | $ | 239 |
| 3.49 | % | | $ | 930,882 | | $ | 427 |
| 0.19 | % | | $ | 53,279 | | $ | 669 |
| 4.97 | % | | $ | 25,730 | | $ | 114 |
| 1.76 | % |
Taxable investment securities (1) | |
| 4,760,089 | |
| 21,699 |
| 1.85 | % | |
| 5,502,965 | |
| 22,164 |
| 1.63 | % | |
| 4,080,835 | |
| 18,301 |
| 1.78 | % | |
| 5,701,691 | |
| 23,623 |
| 1.64 | % |
Nontaxable investment securities (1) | |
| 532,604 | |
| 4,516 |
| 3.44 | % | |
| 413,268 | |
| 3,277 |
| 3.22 | % | |
| 508,356 | |
| 4,325 |
| 3.38 | % | |
| 551,610 | |
| 4,681 |
| 3.37 | % |
Loans (net of unearned discount) (2) | |
| 8,884,164 | |
| 100,519 |
| 4.59 | % | |
| 7,389,290 | |
| 72,658 |
| 3.99 | % | |
| 9,303,479 | |
| 115,295 |
| 4.92 | % | |
| 8,333,148 | |
| 88,575 |
| 4.22 | % |
Total interest-earning assets | |
| 14,204,632 | |
| 126,973 |
| 3.63 | % | |
| 14,236,405 | |
| 98,526 | | 2.81 | % | |
| 13,945,949 | |
| 138,590 |
| 3.94 | % | |
| 14,612,179 | |
| 116,993 | | 3.18 | % |
Noninterest-earning assets | |
| 1,162,231 | |
| |
| | | |
| 1,359,804 | |
| |
| | | |
| 1,177,277 | |
| |
| | | |
| 941,117 | |
| |
| | |
Total assets | | $ | 15,366,863 | |
| |
| | | | $ | 15,596,209 | |
| |
| | | | $ | 15,123,226 | |
| |
| | | | $ | 15,553,296 | |
| |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
Interest checking, savings, and money market deposits | | $ | 7,960,145 | |
| 6,597 |
| 0.34 | % | | $ | 8,186,821 | |
| 821 |
| 0.04 | % | | $ | 7,584,361 | |
| 14,899 |
| 0.78 | % | | $ | 8,179,556 | |
| 2,206 |
| 0.11 | % |
Time deposits | |
| 965,410 | |
| 3,331 |
| 1.40 | % | |
| 914,843 | |
| 1,744 |
| 0.77 | % | |
| 1,377,534 | |
| 9,656 |
| 2.78 | % | |
| 962,777 | |
| 1,649 |
| 0.68 | % |
Customer repurchase agreements | |
| 334,475 | |
| 469 |
| 0.57 | % | |
| 313,046 | |
| 211 |
| 0.27 | % | |
| 269,309 | |
| 823 |
| 1.21 | % | |
| 269,958 | |
| 216 |
| 0.32 | % |
Overnight borrowings | | | 362,496 | | | 4,283 | | 4.79 | % | | | 0 | | | 0 | | 0.00 | % | | | 163,800 | | | 2,265 | | 5.48 | % | | | 188,975 | | | 1,226 | | 2.57 | % |
FHLB borrowings | |
| 17,714 | |
| 134 |
| 3.06 | % | |
| 1,873 | |
| 10 |
| 2.03 | % | |
| 186,401 | |
| 2,127 |
| 4.53 | % | |
| 19,463 | |
| 146 |
| 2.97 | % |
Subordinated notes payable | |
| 3,103 | |
| 38 |
| 4.96 | % | |
| 3,274 | |
| 38 |
| 4.74 | % | |
| 0 | |
| 0 |
| 0.00 | % | |
| 3,261 | |
| 38 |
| 4.63 | % |
Total interest-bearing liabilities | |
| 9,643,343 | |
| 14,852 |
| 0.62 | % | |
| 9,419,857 | |
| 2,824 |
| 0.12 | % | | | 9,581,405 | |
| 29,770 |
| 1.23 | % | |
| 9,623,990 | |
| 5,481 |
| 0.23 | % |
Noninterest-bearing liabilities: | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
Noninterest checking deposits | |
| 4,043,494 | |
| |
| | | |
| 3,968,197 | |
| |
| | | |
| 3,810,542 | |
| |
| | | |
| 4,192,615 | |
| |
| | |
Other liabilities | |
| 103,309 | |
| |
| | | |
| 167,312 | |
| |
| | | |
| 125,481 | |
| |
| | | |
| 56,166 | |
| |
| | |
Shareholders’ equity | |
| 1,576,717 | |
| |
| | | |
| 2,040,843 | |
| |
| | | |
| 1,605,798 | |
| |
| | | |
| 1,680,525 | |
| |
| | |
Total liabilities and shareholders’ equity | | $ | 15,366,863 | |
| |
| | | | $ | 15,596,209 | |
| |
| | | | $ | 15,123,226 | |
| |
| | | | $ | 15,553,296 | |
| |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest earnings | |
| | | $ | 112,121 |
| | | |
| | | $ | 95,702 |
| | | |
| | | $ | 108,820 |
| | | |
| | | $ | 111,512 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest spread | |
| | |
| |
| 3.01 | % | |
| | |
| |
| 2.69 | % | |
| | |
| |
| 2.71 | % | |
| | |
| |
| 2.95 | % |
Net interest margin on interest-earning assets | |
| | |
| |
| 3.20 | % | |
| | |
| |
| 2.73 | % | |
| | |
| |
| 3.07 | % | |
| | |
| |
| 3.00 | % |
Net interest margin on interest-earning assets (FTE) (non-GAAP) | | | | | | | | 3.10 | % | | | | | | | | 3.03 | % | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fully tax-equivalent adjustment (3) | |
| | | $ | 1,091 |
| | | |
| | | $ | 830 |
|
| | |
| | | $ | 1,034 |
| | | |
| | | $ | 1,118 |
|
| |
(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 |
3542
Table 2b: Year-to-Date Average Balance Sheet
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | | Nine Months Ended |
| ||||||||||||
| | September 30, 2023 | | | September 30, 2022 |
| ||||||||||||
|
|
| |
|
| |
| 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 | | $ | 36,609 | | $ | 1,211 |
| 4.42 | % | | $ | 473,112 | | $ | 1,306 |
| 0.37 | % |
Taxable investment securities (1) | |
| 4,382,445 | |
| 60,507 |
| 1.85 | % | |
| 5,655,745 | |
| 69,921 |
| 1.65 | % |
Nontaxable investment securities (1) | |
| 522,002 | |
| 13,288 |
| 3.40 | % | |
| 493,302 | |
| 12,153 |
| 3.29 | % |
Loans (net of unearned discount) (2) | |
| 9,088,402 | |
| 323,261 |
| 4.76 | % | |
| 7,819,306 | |
| 239,322 |
| 4.09 | % |
Total interest-earning assets | |
| 14,029,458 | |
| 398,267 |
| 3.80 | % | |
| 14,441,465 | |
| 322,702 |
| 2.99 | % |
Noninterest-earning assets | |
| 1,183,013 | |
| |
| | | |
| 1,092,450 | |
| |
| | |
Total assets | | $ | 15,212,471 | |
| |
| | | | $ | 15,533,915 | |
| |
| | |
| | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
| | |
| |
| | | |
| | |
| |
| | |
Interest checking, savings, and money market deposits | | $ | 7,804,824 | |
| 33,945 |
| 0.58 | % | | $ | 8,230,007 | |
| 4,037 |
| 0.07 | % |
Time deposits | |
| 1,175,526 | |
| 19,486 |
| 2.22 | % | |
| 941,094 | |
| 5,074 |
| 0.72 | % |
Customer repurchase agreements | |
| 302,270 | |
| 1,947 |
| 0.86 | % | |
| 292,411 | |
| 642 |
| 0.29 | % |
Overnight borrowings | | | 242,226 | | | 9,157 | | 5.05 | % | | | 64,204 | | | 1,233 | | 2.57 | % |
FHLB borrowings | |
| 74,415 | |
| 2,394 |
| 4.30 | % | |
| 10,890 | |
| 238 |
| 2.93 | % |
Subordinated notes payable | |
| 1,023 | |
| 38 |
| 4.96 | % | |
| 3,268 | |
| 115 |
| 4.69 | % |
Total interest-bearing liabilities | |
| 9,600,284 | |
| 66,967 |
| 0.93 | % | |
| 9,541,874 | |
| 11,339 |
| 0.16 | % |
Noninterest-bearing liabilities: | |
| | |
| |
| | | |
| | |
| |
| | |
Noninterest checking deposits | |
| 3,895,939 | |
| |
| | | |
| 4,075,005 | |
| |
| | |
Other liabilities | |
| 110,973 | |
| |
| | | |
| 96,763 | |
| |
| | |
Shareholders' equity | |
| 1,605,275 | |
| |
| | | |
| 1,820,273 | |
| |
| | |
Total liabilities and shareholders’ equity | | $ | 15,212,471 | |
| |
| | | | $ | 15,533,915 | |
| |
| | |
| | | | | | | | | | | | | | | | | | |
Net interest earnings | |
|
| | $ | 331,300 |
| | | |
|
| | $ | 311,363 |
| | |
| | | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| |
| |
| 2.87 | % | |
|
| |
| |
| 2.83 | % |
Net interest margin on interest-earning assets | |
|
| |
| |
| 3.13 | % | |
|
| |
| |
| 2.86 | % |
Net interest margin on interest-earning assets (FTE) (non-GAAP) | | | | | | | | 3.16 | % | | | | | | | | 2.88 | % |
| | | | | | | | | | | | | | | | | | |
Fully tax-equivalent adjustment (3) | |
|
| | $ | 3,205 |
|
| | |
|
| | $ | 2,956 |
|
| |
(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 attempts to enhance the comparability of the performance of assets that have different tax liabilities. |
As discussed above and disclosed in Table 3 below, the change in net interest income (fully tax-equivalent(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.
43
Table 3: Rate/Volume
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2023 | | Three months ended September 30, 2023 | | | Nine months ended September 30, 2023 | ||||||||||||||||||||
| | versus March 31, 2022 | | versus September 30, 2022 | | | versus September 30, 2022 | ||||||||||||||||||||
| | Increase (Decrease) Due to Change in (1) | | 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 |
| Volume |
| Rate |
| Net Change | |||||||||
Interest earned on: | | |
|
| |
|
| |
| | |
|
| |
|
| |
| | |
|
| |
|
| |
|
Cash equivalents | | $ | (797) | | $ | 609 | | $ | (188) | | $ | 205 | | $ | 350 | | $ | 555 | | $ | (2,231) | | $ | 2,136 | | $ | (95) |
Taxable investment securities | |
| (3,192) | |
| 2,727 | |
| (465) | |
| (7,144) | |
| 1,822 | |
| (5,322) | |
| (16,952) | |
| 7,538 | |
| (9,414) |
Nontaxable investment securities | |
| 998 | |
| 241 | |
| 1,239 | |
| (369) | |
| 13 | |
| (356) | |
| 722 | |
| 413 | |
| 1,135 |
Loans (net of unearned discount) | |
| 15,968 | |
| 11,893 | |
| 27,861 | ||||||||||||||||||
Loans | |
| 11,020 | |
| 15,700 | |
| 26,720 | |
| 41,993 | |
| 41,946 | |
| 83,939 | |||||||||
Total interest-earning assets (2) | |
| (220) | |
| 28,667 | |
| 28,447 | |
| (5,538) | |
| 27,135 | |
| 21,597 | |
| (9,444) | |
| 85,009 | |
| 75,565 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest paid on: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Interest checking, savings and money market deposits | |
| (24) | |
| 5,800 | |
| 5,776 | |
| (173) | |
| 12,866 | |
| 12,693 | |
| (220) | |
| 30,128 | |
| 29,908 |
Time deposits | |
| 101 | |
| 1,486 | |
| 1,587 | |
| 980 | |
| 7,027 | |
| 8,007 | |
| 1,545 | |
| 12,867 | |
| 14,412 |
Customer repurchase agreements | |
| 15 | |
| 243 | |
| 258 | |
| (1) | |
| 608 | |
| 607 | |
| 23 | |
| 1,282 | |
| 1,305 |
Overnight borrowings | | | 4,283 | | | 0 | | | 4,283 | | | (182) | | | 1,221 | | | 1,039 | | | 5,873 | | | 2,051 | | | 7,924 |
FHLB borrowings | |
| 117 | |
| 7 | |
| 124 | |
| 1,868 | |
| 113 | |
| 1,981 | |
| 1,995 | |
| 161 | |
| 2,156 |
Subordinated notes payable | |
| (2) | |
| 2 | |
| 0 | |
| (38) | |
| 0 | |
| (38) | |
| (84) | |
| 7 | |
| (77) |
Total interest-bearing liabilities (2) | |
| 69 | |
| 11,959 | |
| 12,028 | |
| (25) | |
| 24,314 | |
| 24,289 | |
| 71 | |
| 55,557 | |
| 55,628 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest earnings (2) | | $ | (214) | | $ | 16,633 | | $ | 16,419 | | $ | (5,160) | | $ | 2,468 | | $ | (2,692) | | $ | (9,078) | | $ | 29,015 | | $ | 19,937 |
(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 trust unit within CBNA), broker-dealer and investment advisory products and services (performed by Community Investment Services Inc. (“CISI”), OneGroup Wealth Partners, Inc. and The Carta Group, Inc.) and asset management services (performed by Nottingham Advisors, Inc.); and 4) insurance and risk management products and services (performed by OneGroup). Additionally, the Company has other transactions that impact noninterest revenues, including realized and unrealized gains or losses on investment securities and gain on debt extinguishment.
3644
Table 4: Noninterest Revenues
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | Nine Months Ended |
| ||||||||||||
| | March 31, | | | September 30, | | September 30, |
| ||||||||||||
(000’s omitted) |
| 2023 |
| 2022 | |
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||
Employee benefit services | | $ | 29,384 | | $ | 29,580 | | | $ | 29,997 | | $ | 27,884 | | $ | 87,946 | | $ | 86,385 | |
Insurance services | |
| 11,522 | |
| 10,409 | | |
| 12,113 | |
| 11,332 | |
| 35,495 | |
| 31,521 | |
Wealth management services | | | 8,245 | | | 8,633 | | | | 7,934 | | | 7,502 | | | 24,037 | | | 24,276 | |
Deposit service charges and fees | |
| 9,173 | |
| 9,350 | | |
| 9,275 | |
| 10,755 | |
| 27,525 | |
| 29,715 | |
Debit interchange and ATM fees | |
| 5,961 | |
| 6,805 | | |
| 6,732 | |
| 6,697 | |
| 19,314 | |
| 20,030 | |
Mortgage banking | |
| 275 | |
| 155 | | |
| 113 | |
| 171 | |
| 399 | |
| 595 | |
Other banking revenues | |
| 1,022 | |
| 739 | | |
| 1,471 | |
| 912 | |
| 4,535 | |
| 2,521 | |
Subtotal | |
| 65,582 | | | 65,671 | | |
| 67,635 | | | 65,253 | | | 199,251 | | | 195,043 | |
Loss on sales of investment securities | | | (52,329) | | | 0 | | | | 0 | | | 0 | | | (52,329) | | | 0 | |
Gain on debt extinguishment | |
| 242 | |
| 0 | | |
| 0 | |
| 0 | |
| 242 | |
| 0 | |
Unrealized gain on equity securities | |
| 0 | |
| 2 | | |||||||||||||
Unrealized loss on equity securities | |
| (49) | |
| (4) | |
| (99) | |
| (24) | | |||||||
Total noninterest revenues | | $ | 13,495 | | $ | 65,673 | | | $ | 67,586 | | $ | 65,249 | | $ | 147,065 | | $ | 195,019 | |
Noninterest revenues/total revenues | | | 10.8 | % | | 40.9 | % | | | 38.5 | % | | 37.1 | % | | 31.0 | % | | 38.7 | % |
Noninterest revenues/operating revenues (FTE basis) (1) | |
| 37.1 | % |
| 40.9 | % | |||||||||||||
Noninterest revenues/operating revenues (FTE basis, non-GAAP) (1) | |
| 38.5 | % |
| 37.2 | % |
| 37.8 | % |
| 38.8 | % |
(1) | For purposes of this ratio noninterest revenues excludes loss on sales of investment securities, gain on debt extinguishment and unrealized |
As displayed in Table 4, noninterest revenues were $13.5$67.6 million infor the third quarter of 2023 and $147.1 million for the first quarternine months of 2023. This represents a decreasean increase of $52.2$2.3 million, or 79.5%3.6%, for the quarter and a decrease of $48.0 million, or 24.6%, for the YTD period in comparison to the sameequivalent 2022 timeframe.periods. The increase for the quarterly period was driven by increases in employee benefit services revenue, insurance services revenue and wealth management services revenue, partially offset by a decrease in banking noninterest revenue. The YTD decrease was primarily a result of a $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities in connection with a strategic balance sheet repositioning executed during the first quarter of 2023 to provide the Company with greater flexibility in managing balance sheet growth and deposit funding. Additionally, thereExcluding the realized loss on sale of investment securities, unrealized loss on equity securities and gain on debt extinguishment recognized in the first quarter of 2023, noninterest revenues were decreasesup $4.2 million, or 2.2%, between September YTD 2023 and September YTD 2022 which was driven by increases in banking noninterest revenue, wealth managementinsurance services revenue and employee benefit services revenue, partially offset by an increasedecreases in insurance servicesbanking noninterest revenue and a gain on debt extinguishment recognized during the first quarter in connection with the early redemption of the Company’s remaining subordinated notes payable with a carrying value of $3.2 million.wealth management services revenue.
Banking noninterest revenue of $16.4$17.6 million for the third quarter and $51.8 million for the first quarternine months of 2023 decreased $0.6$0.9 million, or 3.6%5.1%, and decreased $1.1 million, or 2.1%, respectively, as compared to the corresponding prior year period. This year-over-yearperiods. The quarterly decrease was primarily driven by decreases in deposit service charges and fees and mortgage banking revenues, partially offset by increases in other banking revenues and debit interchange and ATM fees. The YTD decrease was driven by decreases in deposit service charges and fees, debit interchange and ATM fees and mortgage banking revenues, partially offset by an increase in other banking revenues. The decreases in deposit service charges and fees were reflective of fluctuations in annual card-related promotional income and the Company’s implementation of certain deposit fee changes, including the elimination of consumer nonsufficient and unavailable funds fees on personal accounts late in the fourth quarter of 2022, partially offset by increases in other banking revenues and mortgage banking revenues.2022. The Company expects to continue to evaluate its deposit service charges and other fees for further modifications during the last quarter of 2023 and early 2024 in order to better serve the Company’s customers by offering an array of products and help them more effectively manageservices designed to meet their finances.particular type of banking needs.
Employee benefit services revenue decreased $0.2increased $2.1 million, or 0.7%7.6%, and $1.6 million, or 1.8%, for the three and nine months ended September 30, 2023, respectively, as compared to the equivalent prior year first quarterperiods primarily related to new business and a declinesignificant year-over-year increase in asset-based fees reflecting the impacttotal participants under administration, along with a modest increase from lower financial market valuations. Wealth management services revenue was down $0.4 million, or 4.5%, as compared to the prior year first quarter primarily driven by more challenging investment market conditions.appreciation. Insurance services revenue was up $1.1$0.8 million, or 10.7%6.9%, and $4.0 million, or 12.6%, for the firstthird quarter of 2023 as compared to the first quarter of 2022,and YTD periods, respectively, driven primarily by a strong premium market and organic expansion, along with acquired growth resulting from acquisitions between the periods. Wealth management services revenue was up $0.4 million, or 5.8%, for the third quarter of 2023, but down $0.2 million, or 1.0%, for September 2023 YTD as compared to the same time periods of 2022.
45
The ratio of noninterest revenues to total revenues was 10.8%38.5% for the firstthird quarter of 2023 and 31.0% for September YTD 2023, compared to 40.9%37.1% for the prior year’s first quarter.third quarter and 38.7% for September YTD 2022. The quarterly increase was due to noninterest revenues increasing 3.6% while net interest income decreased 2.4% driven by higher funding costs. The YTD decrease was primarily the result of the $52.2$48.0 million, or 79.5%24.6%, decrease in total noninterest revenues due to the aforementioned $52.3 million realized loss on sales of investment securities, while net interest income increased 17.0%6.4%, driven by net interest margin expansion.
The ratio of noninterest revenues to operating revenues (FTE basis)basis, non-GAAP), a non-GAAP measure as defined in the tablefootnote 1 of Table 4 above, was 37.1%38.5% for the quarter ended March 31, 2023 versus 40.9%and 37.8% for the equivalent periodnine months ended September 30, 2023, respectively, versus 37.2% and 38.8% for the comparable periods of 2022. The decrease isincrease between the quarterly periods was due to a 17.2%3.7% increase in adjusted noninterest revenues, while adjusted net interest income (FTE basis) decreased 2.4%. The year-to-date decrease was a function of a 6.4% increase in adjusted net interest income (FTE basis) driven primarily by net interest margin expansion, while adjusted noninterest revenues decreased 0.1% driven by the factors noted above.increased 2.2%.
37
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 | | | Three Months Ended | | Nine Months Ended |
| ||||||||||||
| | March 31, | | | September 30, | | September 30, |
| ||||||||||||
(000’s omitted) | | 2023 |
| 2022 | |
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||
Salaries and employee benefits |
| $ | 71,487 |
| $ | 61,648 |
|
| $ | 70,687 |
| $ | 66,190 |
| $ | 210,208 | | $ | 193,236 | |
Data processing and communications | |
| 13,129 | |
| 12,659 | | |
| 15,480 | |
| 14,184 | |
| 42,900 | |
| 40,454 | |
Occupancy and equipment | |
| 11,024 | |
| 10,952 | | |
| 10,358 | |
| 10,364 | |
| 31,835 | |
| 31,740 | |
Amortization of intangible assets | |
| 3,667 | |
| 3,732 | | |
| 3,576 | |
| 3,837 | |
| 10,948 | |
| 11,420 | |
Legal and professional fees | |
| 5,201 | |
| 3,617 | | |
| 3,826 | |
| 3,194 | |
| 12,129 | |
| 10,196 | |
Business development and marketing | |
| 2,901 | |
| 2,743 | | |
| 4,628 | |
| 3,616 | |
| 12,096 | |
| 9,975 | |
Acquisition expenses | |
| 57 | |
| 299 | | |
| 0 | |
| 409 | |
| 56 | |
| 4,668 | |
Acquisition-related contingent consideration adjustment | | | 80 | | | 0 | | | 1,080 | | | 400 | | |||||||
Other | |
| 6,586 | |
| 4,157 | | |
| 7,869 | |
| 6,391 | |
| 22,342 | |
| 16,327 | |
Total noninterest expenses | | $ | 114,052 | | $ | 99,807 | | | $ | 116,504 | | $ | 108,185 | | $ | 343,594 | | $ | 318,416 | |
| | | | | | | | | | | | | | | | | | | | |
Noninterest expenses/average assets | | | 3.01 | % | | 2.60 | % | | | 3.06 | % | | 2.76 | % | | 3.02 | % | | 2.74 | % |
Operating expenses(1)/average assets | |
| 2.91 | % |
| 2.49 | % | |||||||||||||
Operating expenses(1)/average assets (non-GAAP) | |
| 2.96 | % |
| 2.65 | % |
| 2.91 | % |
| 2.60 | % | |||||||
Efficiency ratio (GAAP) | | | 91.6 | % | | 62.2 | % | | | 66.4 | % | | 61.6 | % | | 72.3 | % | | 63.2 | % |
Efficiency ratio (non-GAAP) (2) | |
| 62.5 | % |
| 59.6 | % | |||||||||||||
Operating efficiency ratio (non-GAAP)(2) | |
| 64.3 | % |
| 59.3 | % |
| 62.8 | % |
| 60.0 | % |
(1) | Operating expenses, a non-GAAP measure, is calculated as total noninterest expenses less acquisition expenses, acquisition-related contingent consideration adjustment and amortization of |
(2) |
46
As shown in Table 5, the Company recorded noninterest expenses of $114.0$116.5 million and $343.6 million for the firstthird quarter and YTD periods of 2023, respectively, representing an increase of $14.2$8.3 million, or 14.3%7.7%, fromfor the prior year’s first quarter. Thequarter and an increase in operating expenses was attributable to a $9.8of $25.2 million, or 16.0%7.9%, increasefor the YTD period. Third quarter and YTD 2023 noninterest expenses included $0.1 million and $1.1 million of acquisition expenses and acquisition-related contingent consideration adjustment, respectively, compared to $0.4 million and $5.1 million in salariesthird quarter and YTD 2022, respectively. Salaries and employee benefits aincreased $4.5 million, or 6.8%, and $17.0 million, or 8.8%, for the third quarter and YTD periods of 2023, respectively, as compared to the corresponding periods of 2022. The remaining change to noninterest expenses are attributed to data processing and communications (up $1.3 million for the quarter and $2.4 million or 58.4%YTD), increase in other expenses, a $1.6occupancy and equipment (consistent between the quarters and up $0.1 million or 43.8%YTD), increase in legal and professional fees a $0.5(up $0.6 million or 3.7%, increase in data processingfor the quarter and communications expenses, a $0.1$1.9 million or 5.8%YTD), increase in business development and marketing (up $1.0 million for the quarter and a $0.1$2.1 million or 0.7%YTD), increase in occupancy and equipment expenses. The increases in these expenses were partially offset by a $0.1 million, or 1.7%, decrease in the amortization of intangible assets (down $0.3 million for the quarter and a $0.2$0.5 million decrease in acquisition-related expenses.YTD) and other expenses (up $1.5 million for the quarter and $6.0 million YTD).
The increase in salaries and benefits expense was driven by merit and market-related increases in merit, severance and incentive-related employee wages, including minimum wage-related compression on the lower end of the Company’s pay scale, acquisition-related and other additions to staffing, higher payroll taxes and higher employee benefit-relatedmedical expenses and certain executive retirement expenses. Other expenses were up primarily due to increases in insurance andexpenses, travel-related expenses along with general inflationary pressures and non-service related components of the incremental expenses associated with operating an expanded franchise subsequent to the Elmira acquisition in the second quarter of 2022.net periodic pension benefit credit. The higher insurance costs included in other expenses reflected larger FDIC insurance expenses due in part to an increase in the base assessment rate effective beginning on January 1, 2023. Legal and professional fees were up on a YTD basis primarily due to an increase in certain legal fees including increases in legal and professional fees associated with anticipated product launches in the employee benefit services business.various matters. The increase in data processing and communications expenses was due to the Company’s continued investment in customer-facingcustomer-interfacing and back office digital technologies and the upgrading of operational support systems between the comparable periods. Business development and marketing expenses increased due to the Company’s investment in digital marketing initiatives and higher levels of targeted advertisements intended to generate deposit inflows.
The Company’s GAAP efficiency ratio was 91.6%66.4% for the firstthird quarter of 2023, 29.44.8 percentage points unfavorable to the comparable quarter of 2022. This resulted from total noninterest expenses increasing 7.7% due to the factors noted above, while total revenues decreasing 22.4%decreased 0.2%, primarily due to alower net interest income driven by higher funding costs. The GAAP efficiency ratio of 72.3% for September YTD 2023 was 9.1 percentage points unfavorable to the 63.2% GAAP efficiency ratio for September YTD 2022. The increase in the GAAP efficiency ratio between the comparable YTD periods was the result of total revenues decreasing 5.6% primarily due to the $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities during the first quarter of 2023, while total noninterest expenses increased 14.3%7.9% due to the factors noted above. Annualized current quarter noninterest expenses as a percentage of average assets increased 41 basis0.30 percentage points versus the firstthird quarter of the prior year as noninterest expenses increased 14.3%7.7% while average assets decreased 2.8%. On a YTD basis, annualized noninterest expenses as a percentage of average assets increased 0.28 percentage points as noninterest expenses increased 7.9% while average assets decreased 2.1%. Noninterest expenses increased between both periods due to the factors noted above and average assets decreased 1.5%between both periods primarily due to the aforementioned sale of certain available-for-sale investment securities during the quarter.first quarter of 2023.
38
The Company’s non-GAAPoperating efficiency ratio (as(a non-GAAP measure, as defined in the table above) was 62.5%64.3% for the firstthird quarter, of 2023, 2.95.0 percentage points unfavorable to the comparable quarter of 2022. This resulted from operating expenses (a non-GAAP measure as described(as defined above) increasing 15.2%8.6%, while operating revenues (a non-GAAP measure as described(as defined above) increased 0.1%. The operating efficiency ratio (non-GAAP) of 62.8% for the first nine months of 2023 was 2.8 percentage points unfavorable compared to the first nine months of 2022 due to 9.8% higher operating expenses (as defined above), while operating revenues (as defined above) increased by a lesser 10.0%4.8%. Current year operating expenses excluding intangible amortization and acquisition expenses,(as defined above) as a percentage of average assets (non-GAAP) increased 42 basis0.31 percentage points versus the prior year first quarter. First quarter and the prior year-to-date period as operating expenses (as defined above) increased 15.2% year-over-year, while average assets decreased 1.5% primarily due toon both a quarterly and YTD basis. Operating expenses (as defined above) increased 8.6% for the aforementioned sale of certain available-for-sale securities duringquarter and 9.8% for the quarter.year-to-date period, while average assets decreased 2.8% for the quarter and 2.1% for the year-to-date period.
Income Taxes
The firstthird quarter and YTD 2023 effective income tax rate was 16.9%rates were 21.2% and 21.1%, respectively, as compared to 21.4%22.0% and 21.6% for the first quartercomparable periods of 2022. The decrease in the rate isthird quarter and YTD 2023 effective income tax rates are primarily attributable to a higher proportiondecrease in the full-year 2023 pre-tax income projection as a result of benefit derived from stock based compensation activitythe loss on investment security sales recognized in relation to total income taxes during the first quarter of 2023. The Company recorded a $0.3 million and $0.6 million reduction in income tax expense associated with stock-based compensation tax benefits for the first quarter ofYTD 2023 and YTD 2022, respectively, while total income tax expense was $1.2 million and $12.8 million for the same respective periods.respectively. The effective tax rates excluding theadjusted to exclude stock-based compensation tax benefits were 21.4% for the firstthird quarter ofand YTD 2023 were 21.2% and 22.3%21.3%, respectively, as compared to 22.0% for the first quarter of 2022, a decrease of 0.9 percentage points primarily due to a decrease in the full-year 2023 pre-tax income projection as a resultboth of the loss on investment security sales recognized in the first quartercomparable periods of 2023 in connection with the Company’s balance sheet repositioning.2022.
47
InvestmentsInvestment Securities
The carrying value of investment securities (including unrealized gains and losses on available-for-sale securities)losses) was $4.63$3.96 billion at the end of the firstthird quarter, a decrease of $684.1 million,$1.35 billion, or 12.9%25.5%, from December 31, 2022 and $1.20$1.27 billion, or 20.6%24.2%, lower than March 31,September 30, 2022. The carrying valuebalance of cash equivalents was $28.3$260.0 million at the end of the firstthird quarter, an increase of $9.9$241.6 million or 54.0%, from December 31, 2022 and a decrease of $812.3$230.0 million from March 31, 2022, as the Company shifted the composition of earning assets from cash equivalents to loans between the periods.September 30, 2022. The book value of investment securities (excluding unrealized gains and losses) of investment securities$4.51 billion at the end of the third quarter decreased $821.9 million$1.33 billion from December 31, 2022 and decreased $1.22$1.69 billion from March 31,September 30, 2022. During the first quarternine months of 2023, the Company purchased $3.3$23.9 million of government agency mortgage-backed securities with an average yield of 5.17%5.49%, which the Company classified as held-to-maturity. These additions were offset by proceeds of $733.8 million from the sale of certain available-for-sale U.S. Treasury securities associated with the first quarter of 2023 balance sheet repositioning and $20.5$582.6 million fromof investment maturities, calls and principal payments during the first threenine months of 2023. Additionally, there was $10.3$30.1 million of net accretion on investment securities during the first quarternine months of 2023. The effective duration of the investment securities portfolio was 6.87.2 years at the end of the firstthird quarter of 2023, as compared to 6.3 years at the end of 2022 and 6.96.5 years at the end of the firstthird quarter of 2022.
The change in the carrying value of investment securities is also impacted by the amount of net unrealized gains or losses.losses in the available-for-sale and equity securities portfolio. At March 31,September 30, 2023, the investment portfolio (excludingexcluding held-to-maturity investment securities)securities had a $385.0$546.4 million net unrealized loss, as compared to a $137.7 million increase in value from the $522.7 million net unrealized loss at December 31, 2022 and an $18.7 million increase in value from the $403.7a $964.9 million net unrealized loss at March 31,September 30, 2022. These changes in the net unrealized position of the portfolio were principally driven by the movements in medium to long-term interest rates, as well as the volume and rates associated with the securities purchases, sales, maturities and reclassifications that have occurred over the past 12 months and the recognition of the loss on sales of available-for-sale investment securities related to the aforementioned balance sheet repositioning.
39
The following table sets forth the faircarrying value forof the Company’s investment securities portfolio:
Table 6: Investment Securities
| | | | | | | | | | | | | | | | | | |
|
| March 31, |
| December 31, |
| | March 31, |
| September 30, |
| December 31, |
| | September 30, | ||||
(000’s omitted) | | 2023 | | 2022 | | | 2022 | | 2023 | | 2022 | | | 2022 | ||||
Available-for-Sale Portfolio: | | |
|
| |
| | | | | |
|
| |
| | | |
U.S. Treasury and agency securities | | $ | 2,576,991 | | $ | 3,243,537 | | $ | 4,832,087 | | $ | 1,979,439 | | $ | 3,243,537 | | $ | 4,275,440 |
Obligations of state and political subdivisions | |
| 509,869 | |
| 504,297 | | | 476,155 | |
| 434,465 | |
| 504,297 | | | 489,910 |
Government agency mortgage-backed securities | |
| 380,458 | |
| 384,633 | | | 454,247 | |
| 337,071 | |
| 384,633 | | | 384,891 |
Corporate debt securities | |
| 7,190 | |
| 7,114 | | | 7,497 | |
| 7,174 | |
| 7,114 | | | 7,033 |
Government agency collateralized mortgage obligations | |
| 11,485 | |
| 12,270 | | | 17,172 | |
| 9,487 | |
| 12,270 | | | 13,415 |
Total available-for-sale portfolio | | | 3,485,993 | |
| 4,151,851 | | | 5,787,158 | | | 2,767,636 | |
| 4,151,851 | | | 5,170,689 |
| |
| | |
| | | | | |
| | |
| | | | |
Held-To-Maturity Portfolio: | | | | | | | | | | |||||||||
Held-to-Maturity Portfolio: | | | | | | | | | | |||||||||
U.S. Treasury and agency securities | | | 1,086,936 | | | 1,079,695 | | | 0 | | | 1,101,679 | | | 1,079,695 | | | 0 |
Government agency mortgage-backed securities | | | 3,299 | | | 0 | | | 0 | | | 23,861 | | | 0 | | | 0 |
Total held-to-maturity portfolio | | | 1,090,235 | | | 1,079,695 | | | 0 | | | 1,125,540 | | | 1,079,695 | | | 0 |
| | | | | | | | | | | | | | | | | | |
Equity and Other Securities: | |
| | | | | | | | |||||||||
Equity and other Securities: | |
| | | | | | | | |||||||||
Equity securities, at fair value | |
| 419 | |
| 419 | | | 465 | |
| 320 | |
| 419 | | | 439 |
Federal Home Loan Bank common stock | |
| 15,342 | |
| 47,497 | | | 7,181 | |
| 26,524 | |
| 47,497 | | | 18,438 |
Federal Reserve Bank common stock | |
| 33,568 | |
| 31,144 | | | 33,568 | |
| 33,568 | |
| 31,144 | | | 33,568 |
Other equity securities, at adjusted cost | | | 5,184 | | | 4,282 | | | 3,244 | | | 6,413 | | | 4,282 | | | 4,158 |
Total equity and other securities | |
| 54,513 | |
| 83,342 | | | 44,458 | |
| 66,825 | |
| 83,342 | | | 56,603 |
| | | | | | | | | | | | | | | | | | |
Total investments | | $ | 4,630,741 | | $ | 5,314,888 | | $ | 5,831,616 | | $ | 3,960,001 | | $ | 5,314,888 | | $ | 5,227,292 |
Loans
Loans ended the firstthird quarter at $8.98$9.45 billion, $172.9$640.7 million, or 2.0%7.3%, higher than at December 31, 2022 ending loans and $1.56 billion,$906.5 million, or 21.0%10.6%, higher than March 31,at September 30, 2022.
48
The business lending portfolio consists of general-purpose business lending to commercial, industrial, non-profit and municipal customers, mortgages on commercial property and vehicle dealer floor plan financing. The business lending portfolio increased $645.4$420.5 million, or 20.8%12.0%, from MarchSeptember 30, 2022 and increased $269.3 million, or 7.4%, from December 31, 2022, driven by net organic growth and $125.3 million of loans acquired from Elmira. The portfolio increased $102.3 million, or 2.8%, from December 31, 2022, which reflected further organic growth. Growth in commercial mortgages drove the majority of the increase between both periods, in particular commercial real estate non-owner occupiedmulti-family and commercial real estate multi-familynon-owner occupied, followed by commercial real estate owner occupied, along withand to a lesser extent increases in commercial and industrial lines of credit, partially offset by decreases in commercial and industrial term loans. While certain macroeconomic concerns are emerging related to non-owner occupied commercial real estate, the Company’s exposure to this portfolio remains diverse and relatively low at 186% of total bank-level regulatory capital, 24% of total loans and lines15% of credit.total assets. The balance increases in these segments are reflective of continued high demand for multi-family housing, expansion of internal resources and proactive business development and pricing in the Company’s market areas. Competitive conditions for business lending continue to prevail in both the digital marketplace and geographic regions in which the Company operates. The Company strives to generate growth in its business portfolio in a manner that adheres to its goals of maintaining strong asset quality and producing profitable margins. The Company continues to invest in additional personnel, technology and business development resources to further strengthen its capabilities in this important product category.
Consumer mortgages increased $427.1$221.2 million, or 16.5%7.4%, from one year ago driven by organic growth and $271.4 million of loans acquired from Elmira, and increased $7.2$184.3 million, or 0.2%6.1%, from December 31, 2022, reflective of further organic growth. Over the past year, the Company produced net organic growth in the consumer mortgage segment due to refinancing activities in early 2022, combined with 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.efforts. Home equity loans increased $33.7$11.7 million, or 8.5%2.7%, from one year ago, including $18.4 million of loans acquired from Elmira, and decreased $2.0increased $10.8 million, or 0.5%2.5%, from December 31, 2022, with rising prime rates having some impact on utilizationin part aided by lower levels of lines of credit.consumer mortgage refinancing-related payoffs and paydowns in the higher interest rate environment.
40
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 $453.8$253.0 million, or 34.2%15.4%, from one year ago including $21.9 million of loans acquired from Elmira, and increased $65.4$176.3 million, or 3.8%10.3%, from December 31, 2022. The increase was primarily due to the Company offering competitive pricing, benefitting from reduced participation by certain competitors and capturing an increased share of the solid sales volumes that existed in its market area and dealer network which, combined with higher vehicle sales prices, resulted in significant growth in the Company’s consumer indirect portfolio, despite national vehicle shortages. 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 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 will 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 7, total allowance for credit losses at the end of the firstthird quarter was $63.2$64.9 million, up $13.0an increase of $4.6 million, or 26.0%7.6%, from one year earlier and up $2.1an increase of $3.9 million, or 3.5%6.4%, from the end of 2022.
49
Table 7: Allowance for Credit Losses by Loan Type
| | | | | | | | | | | | | | | | | ||||||||||||||||
|
| September 30, 2023 |
| December 31, 2022 |
| September 30, 2022 |
| |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | Percent of | | | | | Percent of | | | | | Percent of | |
|
| March 31, 2023 |
| December 31, 2022 |
| March 31, 2022 |
| | | | | Total | | | | | Total | | | | | Total | | |||||||||
(000’s omitted except for ratios) | | Allowance |
| Loan Mix | | Allowance |
| Loan Mix | | Allowance |
| Loan Mix | | | Allowance |
| Loans |
| Allowance |
| Loans |
| Allowance |
| Loans | | ||||||
Business lending | | $ | 25,227 | | 41.7 | % | $ | 23,297 | | 41.4 | % | $ | 21,764 | | 41.8 | % | | $ | 26,044 | | 41.4 | % | $ | 23,297 | | 41.4 | % | $ | 23,931 | | 40.9 | % |
Consumer mortgage | |
| 14,278 |
| 33.6 | % |
| 14,343 |
| 34.2 | % |
| 10,324 |
| 34.9 | % | |
| 14,971 |
| 33.8 | % |
| 14,343 |
| 34.2 | % |
| 13,818 |
| 34.8 | % |
Consumer indirect | |
| 18,047 |
| 17.9 | % |
| 17,852 |
| 17.5 | % |
| 12,866 |
| 15.8 | % | |
| 18,290 |
| 18.1 | % |
| 17,852 |
| 17.5 | % |
| 17,018 |
| 17.1 | % |
Consumer direct | |
| 3,030 |
| 2.0 | % |
| 2,973 |
| 2.0 | % |
| 2,725 |
| 2.1 | % | |
| 3,046 |
| 2.0 | % |
| 2,973 |
| 2.0 | % |
| 3,015 |
| 2.1 | % |
Home equity | |
| 1,588 |
| 4.8 | % |
| 1,594 |
| 4.9 | % |
| 1,468 |
| 5.4 | % | |
| 1,594 |
| 4.7 | % |
| 1,594 |
| 4.9 | % |
| 1,581 |
| 5.1 | % |
Unallocated | | | 1,000 | | 0.0 | % | | 1,000 | | 0.0 | % | | 1,000 | | 0.0 | % | | | 1,000 | | 0.0 | % | | 1,000 | | 0.0 | % | | 1,000 | | 0.0 | % |
Total | | $ | 63,170 |
| 100.0 | % | $ | 61,059 |
| 100.0 | % | $ | 50,147 |
| 100.0 | % | | $ | 64,945 |
| 100.0 | % | $ | 61,059 |
| 100.0 | % | $ | 60,363 |
| 100.0 | % |
As demonstrated in Table 7, business lendingthe consumer direct and consumerindirect installment loan portfolios carry higher credit risk than residential real estate,the business lending, consumer mortgage and as a result, these loans carry allowance for credit losses that coverhome equity portfolios and therefore the Company allocates a higher percentage of their total portfolio balances.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 March 31,September 30, 2023 was consistent with December 31, 2022 and March 31,September 30, 2022. The changes in allowance allocations reflect management’s continued refinement of its loss estimation techniques. However, given the inherent imprecision in the many estimates used in the determination of the allocated portion of the allowance, management remained conservative in the approaches used to establish the overall allowance for credit losses. Management considers the allocated and unallocated portions of the allowance for credit losses to be prudent and reasonable.
41
Allowance for credit losses nonaccrual loans and loan net charge-off ratios are as follows:
Table 8: Loan Ratios
| | | | | | | | | | | | | | | | | | | | |
| | March 31, | | December 31, | | March 31, | | | September 30, | | December 31, | | September 30, | | ||||||
|
| 2023 |
| 2022 |
| 2022 |
|
| 2023 |
| 2022 |
| 2022 |
| ||||||
Allowance for credit losses/total loans | |
| 0.70 | % |
| 0.69 | % |
| 0.68 | % | |
| 0.69 | % |
| 0.69 | % |
| 0.71 | % |
Allowance for credit losses/nonperforming loans | |
| 187 | % |
| 183 | % |
| 139 | % | |
| 176 | % |
| 183 | % |
| 186 | % |
Nonaccrual loans/total loans | |
| 0.33 | % |
| 0.33 | % |
| 0.43 | % | |
| 0.35 | % |
| 0.33 | % |
| 0.33 | % |
Allowance for credit losses/nonaccrual loans | |
| 212 | % |
| 209 | % |
| 156 | % | |
| 196 | % |
| 209 | % |
| 215 | % |
Net charge-offs (annualized) to average loans outstanding (quarterly): | | | | |
| | |
| | | | | | |
| | |
| | |
Business lending | | | 0.00 | % |
| 0.01 | % |
| (0.03) | % | | | 0.00 | % |
| 0.01 | % |
| (0.03) | % |
Consumer mortgage | | | 0.00 | % | | 0.01 | % | | 0.00 | % | | | 0.02 | % | | 0.01 | % | | 0.01 | % |
Consumer indirect | | | 0.31 | % | | 0.46 | % | | 0.24 | % | | | 0.18 | % | | 0.46 | % | | 0.09 | % |
Consumer direct | | | 0.72 | % | | 0.41 | % | | 0.32 | % | | | 0.73 | % | | 0.41 | % | | 0.32 | % |
Home equity | | | (0.01) | % | | (0.01) | % | | (0.08) | % | | | 0.00 | % | | (0.01) | % | | 0.02 | % |
Total loans | | | 0.07 | % | | 0.09 | % | | 0.03 | % | | | 0.05 | % | | 0.09 | % | | 0.02 | % |
The netNet charge-offs during the firstthird quarter of 2023 were $1.5$1.2 million, $1.0an increase of $0.9 million higher thancompared to the firstthird quarter of 2022. All portfolios withexcept the exception of consumer mortgagehome equity portfolio experienced higher net charge-off levels in the firstthird quarter of 2023 compared to the firstthird quarter of 2022. The total net charge-off ratio (net charge-offs annualized as a percentage of average loans outstanding)outstanding for the firstquarter) for the third quarter of 2023 was 0.07%0.05%, four basis points lower than the ratio at December 31, 2022 and three basis points higher than the firstratio at September 30, 2022. Despite the increase in net charge-offs in the third quarter of 2022, but two basis points2023, the net charge-off ratio remains well below the 0.09%Company’s average for the fourth quarterpast ten years of 2022.0.12%. Net charge-off ratios for the firstthird quarter of 2023 for the business lending, consumer mortgage, consumer direct and home equity portfolios were belowabove the Company’s average for the trailing eight quarters, while the net charge-off ratio for the business lending and consumer indirect and consumer direct portfolios were abovebelow the Company’s average for the trailing eight quarters. Economic conditions while weaker, arehave been relatively stable with the unemployment rate in particular remaining low and supporting the continued historically low levels of net charge-offs experienced by the Company.
50
Other real estate owned (“OREO”) at March 31,September 30, 2023 was $0.5$0.6 million. This is consistent with the amountcompares to $0.5 million at both December 31, 2022 and $0.1 million higher than the balance as of March 31,September 30, 2022. At March 31,September 30, 2023, OREO consisted of eight10 residential properties with a total value of $0.5$0.6 million. This compares to seven residential properties with a total value of $0.5 million at December 31, 2022, and fiveeight residential properties with a total value of $0.4$0.5 million at March 31,September 30, 2022.
Approximately 13%15% of the nonperforming loans at March 31,September 30, 2023 were related to the business lending portfolio, which is comprised of business loans broadly diversified by industry type. TheWhile the level of nonperforming business loans decreased fromwas $0.8 million higher than the prior year, as certainthe business lending relationships returned to accrual status, due in part to the stabilization ofnonperforming loans ratio was consistent as business conditions within the recreational and lodging industry withinin the Company’s market area.area remain stable.
Approximately 79%76% of nonperforming loans at March 31,September 30, 2023 were comprised of consumer mortgages. Collateral values of residential properties within most of the Company’s market areas have generally remained stable or have increased over the past several years. Although economic forecasts are weaker,high inflation has had some adverse impact on consumers, the unemployment rate remains low and these conditions havethis has contributed to strongthe credit performance in the consumer mortgage loan segment.segment remaining favorable. The remaining 8%9% of nonperforming loans relate to consumer installment and home equity loans, with home equity nonperforming loan levels being driven by the same factors that were identified for consumer mortgages. The allowance for credit losses to nonperforming loans ratio, a general measure of coverage adequacy, was 187%176% at the end of the firstthird quarter, as compared to 183% at year-end 2022 and 139%186% at March 31,September 30, 2022. The increasedecrease in this ratio between the annual quarterly periods was primarily driven by a higher allowance for credit losses due to growth in total loan balances and a weaker economic forecast, combined with a decreasethe increases in nonperforming business loan levels.and consumer mortgage levels rising proportionally more than the allowance for credit losses.
42
The Company’s senior management, special asset officers and lenders review all delinquent and nonaccrual loans and OREO regularly in order to identify deteriorating situations, monitor known problem credits and discuss any needed changes to collection efforts, if warranted. Based on this analysis, a relationship may be assigned a special assets officer or other senior lending officer to review the loan, meet with the borrowers, assess the collateral and recommend an action plan. This plan could include foreclosure, restructuring loans, issuing demand letters or other actions. The Company’s larger criticized credits are also reviewed on a quarterly basis by senior credit administration management, special assets officers and business lending management to monitor their status and discuss credit 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 0.73%0.90% at the end of the firstthird quarter, of 2023, 16one basis point above the 0.89% at year-end 2022 and 19 basis points belowabove the year-end 2022 ratio of 0.89% and 11 basis points below the March 31, 2022 ratio of 0.84%.0.71% at September 30, 2022. The business lending delinquency ratio at the end of the firstthird quarter of 0.49% was 14nine basis points belowabove the level of 0.40% at December 31, 2022 and 4132 basis points belowabove the level of 0.17% at March 31, 2022, due to the aforementioned return of certain business lending relationships to accrual status amid a stable business environment in the Company’s market area.September 30, 2022. The delinquency rates for the consumer mortgage, consumer indirect and consumer direct and home equity portfolios all increaseddecreased as compared to the levels at MarchDecember 31, 2022, however,while delinquency rates in the consumer mortgage and home equity portfolios increased. The delinquency rates for all portfolio segments decreased asloan portfolios increased compared to theirthe levels at December 31,September 30, 2022. Despite the increase in delinquent loans in the third quarter of 2023, the current quarter delinquency rates remained below the Company’s average for the past ten years of 1.04%.
The Company recorded a $3.5$2.9 million provision for credit losses in the firstthird quarter of 2023. The firstthird quarter provision for credit losses was $2.6$2.2 million higherlower than the equivalent prior year period’s provision for credit losses of $0.9 million, which was mostly driven by a$5.1 million. The third quarter of 2023 provision for credit losses reflects stable economic forecastforecasts and smaller level ofasset quality metrics as well as net loan growth during that period.between the periods. The allowance for credit losses of $63.2$64.9 million as of March 31,September 30, 2023 increased $13.0$3.9 million from the level one year ago. The current quarter provision for credit losses is reflective of weaker economic forecastscompared to December 31, 2022 and an increase in loan balances.increased $4.6 million compared to September 30, 2022. The allowance for credit losses to total loans ratio was 0.70%0.69% at MarchSeptember 30, 2023, consistent with the level at December 31, 2023,2022 and two basis points higherlower than the level at March 31, 2022 and one basis point higher than the level at December 31,September 30, 2022. Refer to Note E: Loans and Allowance for Credit Losses in the notes to the consolidated financial statements for a discussion of management’s methodology used to estimate the allowance for credit losses.
As of March 31,September 30, 2023, the net purchase discount related to the $1.17$1.09 billion of remaining non-PCD loan balances acquired fromin prior period acquisitions was approximately $23.4$21.6 million, or 2.0% of that portfolio.
51
Deposits
As shown in Table 9, average deposits of $12.97$12.77 billion in the firstthird quarter were $100.8$562.5 million, or 0.8%4.2%, lower than the firstthird quarter of 2022. Total average deposit balances decreased $211.5$408.1 million, or 1.6%3.1%, from the fourth quarter of last year, while on an ending basis total deposits increased $98.4$18.5 million, or 0.8%0.1%, from December 31, 2022. The mix of average deposit balances changed as the weighting of non-timenon-maturity deposits (noninterest checking, interest checking, savings and money markets)market) to total deposits has decreased slightly from the prior year levels. Average noninterest checking deposits as a percentage of average total deposits was 31.2%29.8% in the firstthird quarter compared to 30.4%31.4% in the firstthird quarter of 2022 and 31.9% in the fourth quarter of last year. Average non-maturity deposits (noninterest checking, interest checking, savings and money markets) represented 92.6%89.2% of the Company’s average deposit funding base and time deposits represented 10.8% of total average deposits in the firstthird quarter of 2023 while time deposits represented 7.4% of total average deposits.compared to 92.8% and 7.2%, respectively, in the equivalent period year period. The quarterly average cost of deposits was 0.31%0.76% for the firstthird quarter of 2023, compared to 0.08%0.18% for the fourth quarter of 2022 and 0.11% in the firstthird quarter of 2022, reflective of the increase in the average interest rate paid on interest bearinginterest-bearing deposits as interest rates on certain interest-bearing deposits were raised in response to market conditions.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.
The Company’s deposit base is well diversified across customer segments, which as of March 31,September 30, 2023 is comprised of approximately 63%61% consumer, 25%26% business and 12%13% municipal, and broadly dispersed with an average consumerpersonal deposit account balance of approximately $12,000 and average business deposit relationship of approximately $60,000,$62,000, while the Company’s total average deposit account balance is under $20,000. In addition, at the end of the quarter, 74%70% of the Company’s total deposit balancesdeposits were in checking and savings accounts and the weighted-average age of the Company’s non-maturity deposit accounts was approximately 15 years. As of March 31,September 30, 2023, the Company’s total uninsured deposits, net of collateralized and intercompany deposits, is estimated at approximately $2.2$2.11 billion. This amount is determined by adjusting the amounts reported in the Bank Call Report by intercompany deposits, which are not external customers and are therefore eliminated in consolidation, and municipal deposits which are collateralized by certain pledged investment securities. The Bank Call Report estimated uninsured deposit balances at September 30, 2023 are reported gross at $3.92 billion,.
which includes intercompany account balances of $334.2 million and collateralized deposits of $1.47 billion. Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of third quarter ending total deposits.
43
Average nonpublic fund deposits for the firstthird quarter of 2023 decreased $301.2$422.2 million, or 2.5%3.6%, versus the fourth quarter of 2022 and increased $188.8decreased $589.4 million, or 1.7%4.9%, versus the year-earlier period.period as competition intensified in the rising interest rate environment. Average public fund deposits for the firstthird quarter increased $89.7$14.1 million, or 6.7%1.1%, from the fourth quarter of 2022 and increased $26.9 million, or 2.0%, from the third quarter of 2022, primarily due to the seasonal receipt of taxesCompany’s competitive pricing and decreased $289.6 million, or 16.8%, from the first quarter of 2022, due in part to municipalities deploying elevated federal funding received during the pandemic.business development efforts. Average public fund deposits as a percentage of total average deposits decreasedincreased from 13.2%10.0% in the firstthird quarter of 2022 to 11.0%10.6% in the firstthird quarter of 2023.
Table 9: Quarterly Average Deposits
| | | | | | | | | | | | | | | | | | |
| | March 31, | | December 31, | | March 31, | | September 30, | | December 31, | | September 30, | ||||||
(000’s omitted) |
| 2023 |
| 2022 |
| 2022 |
| 2023 |
| 2022 |
| 2022 | ||||||
Noninterest checking deposits | | $ | 4,043,494 | | $ | 4,198,086 |
| $ | 3,968,197 | | $ | 3,810,542 | | $ | 4,198,086 |
| $ | 4,192,615 |
Interest checking deposits | | | 3,225,367 | |
| 3,264,432 |
| | 3,307,299 | | | 2,951,592 | |
| 3,264,432 |
| | 3,299,612 |
Savings deposits | | | 2,434,600 | |
| 2,441,720 |
| | 2,299,645 | | | 2,344,630 | |
| 2,441,720 |
| | 2,460,915 |
Money market deposits | | | 2,300,178 | |
| 2,383,216 |
| | 2,579,877 | | | 2,288,139 | |
| 2,383,216 |
| | 2,419,029 |
Time deposits | | | 965,410 | | | 893,074 |
| | 914,843 | | | 1,377,534 | | | 893,074 |
| | 962,777 |
Total deposits | | $ | 12,969,049 | | $ | 13,180,528 |
| $ | 13,069,861 | | $ | 12,772,437 | | $ | 13,180,528 |
| $ | 13,334,948 |
Nonpublic fund deposits | | $ | 11,537,056 | | $ | 11,838,284 |
| $ | 11,348,299 | | $ | 11,416,091 | | $ | 11,838,284 |
| $ | 12,005,491 |
Public fund deposits | | | 1,431,993 | | | 1,342,244 |
| | 1,721,562 | | | 1,356,346 | | | 1,342,244 |
| | 1,329,457 |
Total deposits | | $ | 12,969,049 | | $ | 13,180,528 |
| $ | 13,069,861 | | $ | 12,772,437 | | $ | 13,180,528 |
| $ | 13,334,948 |
52
Borrowings
Borrowings, excluding securities sold under agreement to repurchase, at the end of the firstthird quarter of 2023 totaled $75.7$316.8 million. This was $715.4$474.3 million or 90.4%, lower than borrowings at December 31, 2022 and $70.5$174.3 million above the level at the end of the firstthird quarter of 2022. The increase from the prior year firstthird quarter was primarily due to an increase in overnightother FHLB borrowings of $58.4$297.4 million as the Company secured $300.0 million of fixed rate FHLB term borrowings in the third quarter of 2023 to support the funding of continued loan growth and an increase in other FHLB borrowings of $15.4 million primarily related to borrowings assumed in the Elmira acquisition during the second quarter of 2022.growth. The decrease from the fourth quarter of 2022 was primarily related to a decrease in overnight borrowings of $710.0$768.4 million as the Company utilized proceeds from its first quarter balance sheet repositioningsecurities sales and subsequent investment security maturities to pay down these borrowings. Additionally, there was a decrease in other FHLB borrowings of $2.2 million and the early redemption of the remaining acquired subordinated notes payable that had a carrying value of $3.2 million.
Securities sold under agreement to repurchase, also referred to as customer repurchase agreements, represent collateralized municipal and commercial funding from customerscustomer accounts that price and operate similar to a deposit instrument. Customer repurchase agreements were $304.6$330.3 million at the end of the firstthird quarter of 2023, $42.0a decrease of $16.4 million lower thanand $22.5 million from December 31, 2022 and $4.1 million higher than March 31, 2022.September 30, 2022, respectively.
Shareholders’ Equity and Regulatory Capital
Total shareholders’ equity of $1.63was $1.55 billion at the end of the firstthird quarter, of 2023 represents an increase of $82.3up $3.2 million from the balance at December 31, 2022. The increase was driven by $108.4 million of other comprehensive income, net of tax, net income of $5.8$98.2 million, $2.3$6.7 million recognized from employee stock options earned and net activity under the Company’s employee stock plans of $0.4$0.7 million, partially offset by $5.3 million of other comprehensive loss, net of tax, dividends declared of $23.7$71.5 million and common stock repurchased of $10.9$25.7 million. The other comprehensive income,loss, net of tax, was comprised of a $108.7$4.4 million increase in the net unrealized loss on investments securities primarily related to increasesdecrease in the after-tax market value adjustment on the available-for-sale investment portfolio asdue to movements in medium andto long-term market interest rates, decreased betweenas well as the periods, partially offset byvolume and rates associated with the securities purchases, sales, maturities and reclassifications that have occurred over the past nine months and the recognition of the loss on sales of available-for-sale investment securities related to aforementioned balance sheet repositioning, and a negative $0.3$0.9 million adjustment to the funded status of the Company’s retirement plans. Over the past 12 months, total shareholders’ equity decreased $218.1increased $93.8 million, as a decreasedriven primarily by an increase in the after-tax market value adjustment on investments, net income, the accretion of the market value adjustment associated with the transfer of securities from the available-for-sale portfolio to the held-to-maturity portfolio and the issuance of stock in association with the employee stock plan, partially offset by dividends declared, common stock repurchase activity and the change in the funded status of the Company’s defined benefit pension and other postretirement plans more than offset net income and the issuance of common stock in association with the employee stock plans.
The dividend payout ratio (dividends declared divided by net income) for the first quarternine months of 2023 was 409.1%72.8%, compared to 49.4%51.8% for the first quarter ofnine months ended September 30, 2022. Excluding the after-tax impact of the loss on sales of investment securities, the first quarter ofYTD 2023 dividend payout ratio was 50.5%51.3%. First quarter dividendsDividends declared for the first nine months of 2023 increased 2.1% versus one year earlier,1.8% compared to the first nine months of 2022, as the Company’s quarterly dividend per share was raised from $0.43 to $0.44 in the third quarter of 2022 and from $0.44 to $0.45 in the third quarter of 2023, while net income decreased 87.7% over27.5% versus the prior yearequivalent year-to-date period primarily due to theincreases in operating expenses and realized loss on investment securitysecurities, partially offset by increases in net interest income and noninterest revenues and a decrease in the provision for credit losses. Excluding the after-tax impact of the securities sales recognized in the first quarter of 2023. The 2022 dividend increase marked2023, net income increased 2.8% between the Company’s 30th consecutivefirst nine months of 2023 and the equivalent prior year of increased dividend payouts to common shareholders.period. Additionally, the number of common shares outstanding decreased 0.3%0.6% over the last twelve months, as common stock repurchases outweighed issuances fromnew issuance activity in the Company’s employee stock plans.
44
Table During the third quarter of Contents2023, the Company announced a one-cent, or 2.3%, increase in the quarterly dividend to $0.45 per share on its common stock, which marked the 31st 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 financial statements and ability to pay dividends. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s on 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 components, risk weightings and other factors.
53
The Company and the Bank are required to maintain a “capital conservation buffer” for risk-weighted capital parameters, composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios. The required capital conservation buffer is 2.5% as of March 31,September 30, 2023 and December 31, 2022. Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer as of March 31,September 30, 2023 and December 31, 2022, the Company and the Bank must maintain:
(i) Common equity Tier 1 capital to total risk-weighted assets (“Common equity tier 1 capital ratio”) of at least 7.0%,
In addition, the Company and Bank must maintain a ratio of ending Tier 1 capital to adjusted quarterly average assets (“Tier 1 leverage ratio”) of at least 5.0% to be considered “well capitalized” under the regulatory framework for prompt corrective action.
As of March 31,September 30, 2023 and December 31, 2022, the Company and Bank meet all applicable capital adequacy requirements to be considered “well capitalized”. As of March 31,September 30, 2023 and December 31, 2022, the regulatory capital ratios for the Company and Bank are presented below.
Table 10: Regulatory Ratios
| | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| December 31, 2022 |
| | September 30, 2023 |
| December 31, 2022 |
| September 30, 2022 |
| ||||||||||
| | Community Bank | | Community | | Community Bank | | Community |
| | Community Bank | | Community | | Community Bank | | Community |
| Community Bank | | Community |
|
|
| System, Inc. |
| Bank, N.A. |
| System, Inc. |
| Bank, N.A. | |
| System, Inc. |
| Bank, N.A. |
| System, Inc. |
| Bank, N.A. | | System, Inc. |
| Bank, N.A. | |
Tier 1 leverage ratio | | 9.06 | % | 7.58 | % | 8.79 | % | 7.26 | % | | 9.44 | % | 7.83 | % | 8.79 | % | 7.26 | % | 8.78 | % | 7.03 | % |
Common equity Tier 1 capital ratio |
| 14.98 | % | 12.37 | % | 15.71 | % | 12.86 | % | 15.50 | % | 12.44 | % | |||||||||
Tier 1 risk-based capital ratio |
| 15.21 | % | 12.66 | % | 15.71 | % | 12.86 | % |
| 14.98 | % | 12.37 | % | 15.71 | % | 12.86 | % | 15.50 | % | 12.44 | % |
Total risk-based capital ratio |
| 15.91 | % | 13.37 | % | 16.40 | % | 13.56 | % |
| 15.68 | % | 13.07 | % | 16.40 | % | 13.56 | % | 16.19 | % | 13.14 | % |
Common equity Tier 1 capital ratio |
| 15.20 | % | 12.65 | % | 15.71 | % | 12.86 | % |
The Company’s Tier 1 leverage ratio, a primary measure of regulatory capital for which 5% is the requirement to be “well-capitalized”,as defined above, was 9.06%9.44% at the end of the firstthird quarter, up 27 basis0.65 percentage points from December 31, 2022 and 3 basis0.66 percentage points belowabove its level one year earlier. The increase in the Tier 1 leverage ratio in comparison to December 31, 2022 was the result of ending shareholders’ equity, excluding intangibles (net of associated deferred tax liabilities or “net intangibles”) and other comprehensive income or loss items, decreasing 1.8%increasing 0.6%, primarilywhile average assets, excluding intangibles and the market value adjustment on investments, decreased 6.3%. The Tier 1 leverage ratio increased compared to the prior year’s third quarter as a result of an increase in commonshareholders’ equity, excluding net intangibles and other comprehensive income or loss items, increased 3.2% as net earnings retention outweighed share repurchases, while average assets, excluding intangibles and the market value adjustment on investments, decreased 4.7%,4.1%. The increase in shareholders’ equity, excluding net intangibles and other comprehensive income or loss items, between both periods was primarily due to net earnings retention, that despite the negative impact of the realized loss on investment security sales in connection with the first quarter 2023 balance sheet repositioning, outweighed share repurchases. The decrease in average assets, excluding intangibles and the market value adjustment on investments, between both periods was primarily due to the impact from the Company’s first quarter 2023 balance sheet repositioning. The Tier 1 leverage ratio decreased compared to the prior year’s first quarter as shareholders’ equity, excluding intangibles and other comprehensive income or loss items, increased 0.1% as the impact
54
The shareholders’ equity-to-assets ratio was 10.71%10.11% at the end of the firstthird quarter of 2023 compared to 9.80% at December 31, 2022 and 11.85%9.37% at March 31,September 30, 2022. The tangible equity-to-assets ratio (a non-GAAP measure) of 5.41%4.81% increased 0.770.17 percentage points from December 31, 2022 and decreased 1.57increased 0.73 percentage points versus March 31,September 30, 2022 (see Table 11 for Reconciliation of Quarterly GAAP to Non-GAAP Measures). The decreaseincrease in the tangible equity-to-net assetsequity-to-assets ratio (non-GAAP) from one year prior was primarily driven by a $254.6$97.4 million, or 24.6%16.2%, decreaseincrease in tangible equity due to the decline in accumulated other comprehensive incomeloss related to the Company’s investment securities portfolio due in part to the timing of the reclassification of certain investment securities from the available-for-sale portfolio to the held-to-maturity portfolio in the fourth quarter of 2022 and a $37.9 million net increase in intangible assets primarily driven by the Elmira acquisition, partially offset by a $406.4$204.6 million, or 2.7%1.4%, decrease in tangible assets due primarily to the saleaforementioned sales and maturities of $786.1 million ofcertain available-for-sale investment securities. The increase in the net tangible equity-to-net assetsequity-to-assets ratio (non-GAAP) from December 31, 2022 was driven by an $83.5a $3.2 million, or 12.0%0.5%, increase in tangible equity, due to the impact of lower market interest rates on the after-tax market value adjustment on available-for-sale investment securities, while tangible assets decreased $578.5$449.4 million, or 3.9%3.0%, primarily due to the reduction in investment securities and borrowings resulting from the Company’s first quarter balance sheet repositioning.repositioning and investment maturities.
45
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’customers' demands, as well as the Company’sCompany's desire to take advantage of earnings enhancement opportunities, the Company must have adequate sources of on and off-balance sheet funds available that can be utilized when needed. Accordingly, in addition to the liquidity provided by balance sheet cash flows, liquidity must be supplemented with additional sources such as credit lines from correspondent banks and borrowings from the FHLB and the Federal Reserve. Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements, large certificates of deposit and the brokered CD market. The primary sourcesources of non-deposit funds are FHLB or Federal Reserve overnight advances of whichand other FHLB term borrowings. At September 30, 2023, there were $58.4$316.8 million of outstandingother FHLB term borrowings at March 31, 2023.and no overnight borrowings outstanding.
The Company’s primary sources of liquidity are its liquid assets, as well as unencumbered loans and securities that can be used to collateralize additional funding. At March 31,September 30, 2023, the Bank had $189.3$455.8 million of cash and cash equivalents of which $28.3$260.0 million are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks. Cash and cash equivalents, net of float, that were readily available for liquidity purposes was $109.7 million at March 31, 2023. The Company also had $1.84$2.61 billion in unused FHLB & FRB borrowing capacity based on the Company’s quarter-end loan collateral levels and had $1.54 billion of funding availability at the Federal Reserve’s discount window.levels. Additionally, at the Company had approximately $1.21$1.75 billion of unencumbered securities that could be sold or pledged at the FHLB or Federal Reserve to obtain additional funding. There was $25.0 million available in an unsecured linesline of credit with othera correspondent banksbank at quarter end. The Company’s available sources of immediately available liquidity of $4.69$4.81 billion at the end of the firstthird quarter of 2023 represent over 200% of the Company’s estimated uninsured deposits, net of collateralized and intercompany deposits, estimated at approximately $2.2 billion and are exclusive of any potential benefits from utilization of the Federal Reserve Bank’s Bank Term Funding Program announced on March 12, 2023.$2.11 billion.
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 March 31,September 30, 2023, this ratio was 13.8%10.5% for 30-days and 12.6%9.3% for 90-days, excluding the Company’s capacity to borrow additional funds from the FHLB and other sources. This is considered to be a sufficient amount of liquidity based on the Company’s internal policy requirement of 7.5%.
A sources and uses statement is used by the Company to measure intermediate liquidity risk over the next twelve months. As of March 31,September 30, 2023, there is more than enough liquidity available during the next year to cover projected cash outflows. In addition, stress tests on the cash flows are performed in various scenarios ranging from high probability events with a low impact on the liquidity position to low probability events with a high impact on the liquidity position. The results of the stress tests as of March 31,September 30, 2023 indicate the Company has sufficient sources of funds for the next year in all simulated stressed scenarios.
55
To measure longer-term liquidity, a baseline projection of loan and deposit growth for five years is made to reflect how liquidity levels could change over time. This five-year measure reflects ample liquidity for loan and other asset growth over the next five years.
46
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. Management believes that both potential circumstances have been fully addressed through the establishment of trigger points for monitoring such events and detailed action plans that would be initiated if those trigger points are reached. These trigger points 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 based on a variety of factors, including Company history, trends, and current operating performance, industry observations, and 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 public and nonpublic deposits to total funding, and average borrowings to total funding; capital at risk indicators consisting mainly of regulatory ratios; asset quality indicators; and decrease in funds availability indicators which is 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 define 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, 2022 as filed with the SEC on March 1, 2023 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 as filed with the SEC on May 10, 2023.
4756
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 commercial real estate and residential housing or vehicle prices, higher unemployment rates, labor shortages, supply chain disruption, inability to obtain raw materials and supplies, U.S. fiscal debt, budget and tax matters, geopolitical matters and conflicts, and any slowdown in global economic growth; (3) the effect of, and changes in, monetary and fiscal policies and laws, including future changes in Federal and state statutory income tax rates and interest rate and other policy actions of the Board of Governors of the Federal Reserve System; (4) the effect of changes in the level of checking or savings account deposits on the Company’s funding costs and net interest margin; (5) future provisions for credit losses on loans and debt securities; (6) changes in nonperforming assets; (7) the effect of a fall in stock market or bond prices on the Company’s fee income businesses, including its employee benefit services, wealth management, and insurance businesses; (8) risks related to credit quality; (9) inflation, interest rate, liquidity, market and monetary fluctuations; (10) the strength of the U.S. economy in general and the strength of the local economies where the Company conducts its business; (11) the timely development of new products and services and customer perception of the overall value thereof (including features, pricing and quality) compared to competing products and services; (12) changes in consumer spending, borrowing and savings habits; (13) technological changes and implementation and financial risks associated with transitioning to new technology-based systems involving large multi-year contracts; (14) the ability of the Company to maintain the security, including cybersecurity, of its financial, accounting, technology, data processing and other operating systems, facilities and facilities;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) other risk factors outlined in the Company’s filings with the SEC from time to time; and (23) 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, 2022 as filed with the SEC on March 1, 2023 and this Quarterly Report onthe Form 10-Q below.for the quarter ended March 31, 2023, as filed with the SEC on May 10, 2023. 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.statements.
4857
Reconciliation of GAAP to Non-GAAP Measures
Table 11: GAAP to Non-GAAP Reconciliations
| | | | | | | | | | | | | | |||||||
| | Three Months Ended | | | Three Months Ended | | Nine Months Ended | | ||||||||||||
|
| March 31, |
|
| September 30, |
| September 30, |
| ||||||||||||
(000’s omitted) | | 2023 | | 2022 |
| | 2023 | | 2022 |
| 2023 |
| 2022 | | ||||||
Income statement data | | | | | | | | | | | | | | | | | | | | |
Pre-tax, pre-provision net revenue | | | | | | | | | | | | | | | | | | | | |
Net income (GAAP) | | $ | 5,798 | | $ | 47,055 | | | $ | 44,129 | | $ | 48,691 | | $ | 98,218 | | $ | 135,551 | |
Income taxes | |
| 1,175 | | | 12,777 | | |
| 11,861 | | | 13,706 | |
| 26,218 | | | 37,454 | |
Income before income taxes | | | 6,973 | | | 59,832 | | | | 55,990 | | | 62,397 | | | 124,436 | | | 173,005 | |
Provision for credit losses | | | 3,500 | | | 906 | | | | 2,878 | | | 5,061 | | | 7,130 | | | 12,005 | |
Pre-tax, pre-provision net revenue (non-GAAP) | | | 10,473 | | | 60,738 | | | | 58,868 | | | 67,458 | | | 131,566 | | | 185,010 | |
Acquisition expenses | | | 57 | | | 299 | | | | 0 | | | 409 | | | 56 | | | 4,668 | |
Loss on sales of investment securities | | | 52,329 | | | 0 | | | | 0 | | | 0 | | | 52,329 | | | 0 | |
Gain on debt extinguishment | | | (242) | | | 0 | | | | 0 | | | 0 | | | (242) | | | 0 | |
Unrealized gain on equity securities | | | 0 | | | (2) | | |||||||||||||
Acquisition-related contingent consideration adjustment | | | 80 | | | 0 | | | 1,080 | | | 400 | | |||||||
Unrealized loss on equity securities | | | 49 | | | 4 | | | 99 | | | 24 | | |||||||
Adjusted pre-tax, pre-provision net revenue (non-GAAP) | | $ | 62,617 | | $ | 61,035 | | | $ | 58,997 | | $ | 67,871 | | $ | 184,888 | | $ | 190,102 | |
| | | | | | | | | | | | | | | | | | | | |
Pre-tax, pre-provision net revenue per share | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share (GAAP) | | $ | 0.11 | | $ | 0.86 | | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.49 | |
Income taxes | | | 0.02 | | | 0.24 | | | | 0.22 | | | 0.25 | | | 0.48 | | | 0.69 | |
Income before income taxes | | | 0.13 | | | 1.10 | | | | 1.04 | | | 1.15 | | | 2.30 | | | 3.18 | |
Provision for credit losses | | | 0.07 | | | 0.01 | | | | 0.06 | | | 0.10 | | | 0.13 | | | 0.22 | |
Pre-tax, pre-provision net revenue per share (non-GAAP) | | | 0.20 | | | 1.11 | | | | 1.10 | | | 1.25 | | | 2.43 | | | 3.40 | |
Acquisition expenses | | | 0.00 | | | 0.01 | | | | 0.00 | | | 0.00 | | | 0.00 | | | 0.08 | |
Loss on sales of investment securities | | | 0.96 | | | 0.00 | | | | 0.00 | | | 0.00 | | | 0.97 | | | 0.00 | |
Gain on debt extinguishment | | | 0.00 | | | 0.00 | | | | 0.00 | | | 0.00 | | | 0.00 | | | 0.00 | |
Unrealized gain on equity securities | | | 0.00 | | | 0.00 | | |||||||||||||
Acquisition-related contingent consideration adjustment | | | 0.00 | | | 0.00 | | | 0.02 | | | 0.01 | | |||||||
Unrealized loss on equity securities | | | 0.00 | | | 0.00 | | | 0.00 | | | 0.00 | | |||||||
Adjusted pre-tax, pre-provision net revenue per share (non-GAAP) | | $ | 1.16 | | $ | 1.12 | | | $ | 1.10 | | $ | 1.25 | | $ | 3.42 | | $ | 3.49 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | |
Net income (GAAP) | | $ | 5,798 | | $ | 47,055 | | | $ | 44,129 | | $ | 48,691 | | $ | 98,218 | | $ | 135,551 | |
Acquisition expenses | | | 57 | | | 299 | | | | 0 | | | 409 | | | 56 | | | 4,668 | |
Tax effect of acquisition expenses | | | (12) | | | (64) | | | | 0 | | | (90) | | | (12) | | | (1,009) | |
Subtotal (non-GAAP) | | | 5,843 | | | 47,290 | | | | 44,129 | | | 49,010 | | | 98,262 | | | 139,210 | |
Loss on sales of investment securities | | | 52,329 | | | 0 | | | | 0 | | | 0 | | | 52,329 | | | 0 | |
Tax effect of loss on sales of investment securities | | | (11,171) | | | 0 | | | | 0 | | | 0 | | | (11,171) | | | 0 | |
Subtotal (non-GAAP) | | | 47,001 | | | 47,290 | | | | 44,129 | | | 49,010 | | | 139,420 | | | 139,210 | |
Gain on debt extinguishment | | | (242) | | | 0 | | | | 0 | | | 0 | | | (242) | | | 0 | |
Tax effect of gain on debt extinguishment | | | 52 | | | 0 | | | | 0 | | | 0 | | | 52 | | | 0 | |
Subtotal (non-GAAP) | | | 46,811 | | | 47,290 | | | | 44,129 | | | 49,010 | | | 139,230 | | | 139,210 | |
Unrealized gain on equity securities | | | 0 | | | (2) | | |||||||||||||
Tax effect of unrealized gain on equity securities | | | 0 | | | 0 | | |||||||||||||
Acquisition-related contingent consideration adjustment | | | 80 | | | 0 | | | 1,080 | | | 400 | | |||||||
Tax effect of acquisition-related contingent consideration adjustment | | | (17) | | | 0 | | | (231) | | | (86) | | |||||||
Subtotal (non-GAAP) | | | 44,192 | | | 49,010 | | | 140,079 | | | 139,524 | | |||||||
Acquisition-related provision for credit losses | | | 0 | | | 0 | | | 0 | | | 3,927 | | |||||||
Tax effect of acquisition-related provision for credit losses | | | 0 | | | 0 | | | 0 | | | (848) | | |||||||
Subtotal (non-GAAP) | | | 44,192 | | | 49,010 | | | 140,079 | | | 142,603 | | |||||||
Unrealized loss on equity securities | | | 49 | | | 4 | | | 99 | | | 24 | | |||||||
Tax effect of unrealized loss on equity securities | | | (10) | | | (1) | | | (21) | | | (5) | | |||||||
Operating net income (non-GAAP) | | | 46,811 | | | 47,288 | | | | 44,231 | | | 49,013 | | | 140,157 | | | 142,622 | |
Amortization of intangibles | | | 3,667 | | | 3,732 | | |||||||||||||
Tax effect of amortization of intangibles | | | (783) | | | (797) | | |||||||||||||
Amortization of intangible assets | | | 3,576 | | | 3,837 | | | 10,948 | | | 11,420 | | |||||||
Tax effect of amortization of intangible assets | | | (757) | | | (843) | | | (2,333) | | | (2,472) | | |||||||
Subtotal (non-GAAP) | | | 49,695 | | | 50,223 | | | | 47,050 | | | 52,007 | | | 148,772 | | | 151,570 | |
Acquired non-PCD loan accretion | | | (1,079) | | | (734) | | | | (948) | | | (1,397) | | | (2,913) | | | (3,154) | |
Tax effect of acquired non-PCD loan accretion | | | 230 | | | 157 | | | | 201 | | | 307 | | | 621 | | | 685 | |
Adjusted net income (non-GAAP) | | $ | 48,846 | | $ | 49,646 | | | $ | 46,303 | | $ | 50,917 | | $ | 146,480 | | $ | 149,101 | |
| | | | | | | | | | | | | | | | | | | | |
Return on average assets | | | | | | | | | | | | | | | | | | | | |
Adjusted net income (non-GAAP) | | $ | 48,846 | | $ | 49,646 | | | $ | 46,303 | | $ | 50,917 | | $ | 146,480 | | $ | 149,101 | |
Average total assets | | | 15,366,863 | | | 15,596,209 | | | | 15,123,226 | | | 15,553,296 | | | 15,212,471 | | | 15,533,915 | |
Adjusted return on average assets (non-GAAP) | | | 1.29 | % | | 1.29 | % | | | 1.21 | % | | 1.30 | % | | 1.29 | % | | 1.28 | % |
4958
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended |
|
| Three Months Ended |
| Nine Months Ended | | ||||||||||||
| | March 31, |
| | September 30, |
| September 30, | | ||||||||||||
(000's omitted) | | 2023 |
| 2022 | | | 2023 |
| 2022 | | 2023 | | 2022 | | ||||||
Income statement data (continued) | | | | | | | | |||||||||||||
Income statement data, continued | | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | | | | |
Return on average equity | | | | | | | | | | | | | | | | | | | | |
Adjusted net income (non-GAAP) | | $ | 48,846 | | $ | 49,646 | | | $ | 46,303 | | $ | 50,917 | | $ | 146,480 | | $ | 149,101 | |
Average total equity | | | 1,576,717 | | | 2,040,843 | | | | 1,605,798 | | | 1,680,525 | | | 1,605,275 | | | 1,820,273 | |
Adjusted return on average equity (non-GAAP) | | | 12.56 | % | | 9.87 | % | | | 11.44 | % | | 12.02 | % | | 12.20 | % | | 10.95 | % |
| | | | | | | | | | | | | | |||||||
Net interest margin | | | | | | | | | | | | | | |||||||
Net interest income | | $ | 107,786 | | $ | 110,394 | | $ | 328,095 | | $ | 308,407 | | |||||||
Total average interest-earning assets | | | 13,945,949 | | | 14,612,179 | | | 14,029,458 | | | 14,441,465 | | |||||||
Net interest margin | | | 3.07 | % | | 3.00 | % | | 3.13 | % | | 2.86 | % | |||||||
| | | | | | | | | | | | | | |||||||
Net interest margin (FTE) | | | | | | | | | | | | | | |||||||
Net interest income | | $ | 107,786 | | $ | 110,394 | | $ | 328,095 | | $ | 308,407 | | |||||||
Fully tax-equivalent adjustment | | | 1,034 | | | 1,118 | | | 3,205 | | | 2,956 | | |||||||
Fully tax-equivalent net interest income | | | 108,820 | | | 111,512 | | | 331,300 | | | 311,363 | | |||||||
Total average interest-earning assets | | | 13,945,949 | | | 14,612,179 | | | 14,029,458 | | | 14,441,465 | | |||||||
Net interest margin (FTE) (non-GAAP) | | | 3.10 | % | | 3.03 | % | | 3.16 | % | | 2.88 | % | |||||||
| | | | | | | | | | | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share (GAAP) | | $ | 0.11 | | $ | 0.86 | | | $ | 0.82 | | $ | 0.90 | | $ | 1.82 | | $ | 2.49 | |
Acquisition expenses | |
| 0.00 | |
| 0.01 | | |
| 0.00 | |
| 0.00 | | | 0.00 | | | 0.08 | |
Tax effect of acquisition expenses | |
| 0.00 | |
| 0.00 | | |
| 0.00 | |
| 0.00 | | | 0.00 | | | (0.02) | |
Subtotal (non-GAAP) | |
| 0.11 | |
| 0.87 | | |
| 0.82 | |
| 0.90 | | | 1.82 | | | 2.55 | |
Loss on sales of investment securities | |
| 0.96 | |
| 0.00 | | |
| 0.00 | |
| 0.00 | | | 0.97 | | | 0.00 | |
Tax effect of loss on sales of investment securities | |
| (0.21) | |
| 0.00 | | |
| 0.00 | |
| 0.00 | | | (0.21) | | | 0.00 | |
Subtotal (non-GAAP) | |
| 0.86 | |
| 0.87 | | |
| 0.82 | |
| 0.90 | | | 2.58 | | | 2.55 | |
Gain on debt extinguishment | |
| 0.00 | |
| 0.00 | | |
| 0.00 | |
| 0.00 | | | 0.00 | | | 0.00 | |
Tax effect of gain on debt extinguishment | |
| 0.00 | |
| 0.00 | | |
| 0.00 | |
| 0.00 | | | 0.00 | | | 0.00 | |
Subtotal (non-GAAP) | |
| 0.86 | |
| 0.87 | | |
| 0.82 | |
| 0.90 | | | 2.58 | | | 2.55 | |
Unrealized gain on equity securities | |
| 0.00 | |
| 0.00 | | |||||||||||||
Tax effect of unrealized gain on equity securities | |
| 0.00 | |
| 0.00 | | |||||||||||||
Acquisition-related contingent consideration adjustment | |
| 0.00 | |
| 0.00 | | | 0.02 | | | 0.01 | | |||||||
Tax effect of acquisition-related contingent consideration adjustment | |
| 0.00 | |
| 0.00 | | | 0.00 | | | 0.00 | | |||||||
Subtotal (non-GAAP) | | | 0.82 | | | 0.90 | | | 2.60 | | | 2.56 | | |||||||
Acquisition-related provision for credit losses | | | 0.00 | | | 0.00 | | | 0.00 | | | 0.07 | | |||||||
Tax effect of acquisition-related provision for credit losses | | | 0.00 | | | 0.00 | | | 0.00 | | | (0.01) | | |||||||
Subtotal (non-GAAP) | | | 0.82 | | | 0.90 | | | 2.60 | | | 2.62 | | |||||||
Unrealized loss on equity securities | | | 0.00 | | | 0.00 | | | 0.00 | | | 0.00 | | |||||||
Tax effect of unrealized loss on equity securities | | | 0.00 | | | 0.00 | | | 0.00 | | | 0.00 | | |||||||
Operating earnings per share (non-GAAP) | | | 0.86 | | | 0.87 | | | | 0.82 | | | 0.90 | | | 2.60 | | | 2.62 | |
Amortization of intangibles | |
| 0.07 | |
| 0.07 | | |||||||||||||
Tax effect of amortization of intangibles | |
| (0.01) | |
| (0.02) | | |||||||||||||
Amortization of intangible assets | |
| 0.07 | |
| 0.07 | | | 0.20 | | | 0.21 | | |||||||
Tax effect of amortization of intangible assets | |
| (0.01) | |
| (0.02) | | | (0.04) | | | (0.05) | | |||||||
Subtotal (non-GAAP) | | | 0.92 | | | 0.92 | | | | 0.88 | | | 0.95 | | | 2.76 | | | 2.78 | |
Acquired non-PCD loan accretion | | | (0.02) | | | (0.01) | | | | (0.02) | | | (0.02) | | | (0.06) | | | (0.06) | |
Tax effect of acquired non-PCD loan accretion | | | 0.00 | | | 0.00 | | | | 0.00 | | | 0.01 | | | 0.01 | | | 0.02 | |
Diluted adjusted net earnings per share (non-GAAP) | | $ | 0.90 | | $ | 0.91 | | | $ | 0.86 | | $ | 0.94 | | $ | 2.71 | | $ | 2.74 | |
| | | | | | | | | | | | | | | | | | | | |
Noninterest operating expenses | |
| | |
| | | |||||||||||||
Noninterest expenses (GAAP) | | $ | 114,052 | | $ | 99,807 | | |||||||||||||
Amortization of intangibles | |
| (3,667) | |
| (3,732) | | |||||||||||||
Acquisition expenses | |
| (57) | |
| (299) | | |||||||||||||
Total adjusted noninterest expenses (non-GAAP) | | $ | 110,328 | | $ | 95,776 | | |||||||||||||
| | | | | | | | |||||||||||||
Efficiency ratio | |
| | |
| | | |||||||||||||
Efficiency ratio – GAAP | |
| | |
| | | | | | | | | |||||||
Noninterest expenses (GAAP) - numerator | | $ | 114,052 | | $ | 99,807 | | | $ | 116,504 | | $ | 108,185 | | $ | 343,594 | | $ | 318,416 | |
Net interest income (GAAP) | | | 111,030 | | | 94,872 | | | | 107,786 | | | 110,394 | | | 328,095 | | | 308,407 | |
Noninterest revenues (GAAP) | | | 13,495 | | | 65,673 | | | | 67,586 | | | 65,249 | | | 147,065 | | | 195,019 | |
Total revenues (GAAP) - denominator | | $ | 124,525 | | $ | 160,545 | | | $ | 175,372 | | $ | 175,643 | | $ | 475,160 | | $ | 503,426 | |
Efficiency ratio (GAAP) | | | 91.6 | % | | 62.2 | % | | | 66.4 | % | | 61.6 | % | | 72.3 | % | | 63.2 | % |
| | | | | | | | | | | | | | | | | | | | |
Noninterest operating expenses | | | | | | | | | | | | | | |||||||
Noninterest expenses (GAAP) | | $ | 116,504 | | $ | 108,185 | | $ | 343,594 | | $ | 318,416 | | |||||||
Amortization of intangible assets | | | (3,576) | | | (3,837) | | | (10,948) | | | (11,420) | | |||||||
Acquisition expenses | | | 0 | | | (409) | | | (56) | | | (4,668) | | |||||||
Acquisition-related contingent consideration adjustment | | | (80) | | | 0 | | | (1,080) | | | (400) | | |||||||
Total adjusted noninterest expenses (non-GAAP) | | $ | 112,848 | | $ | 103,939 | | $ | 331,510 | | $ | 301,928 | | |||||||
| | | | | | | | | | | | | | |||||||
Operating efficiency ratio – non-GAAP | | | | | | | | | | | | | | |||||||
Adjusted noninterest expenses (non-GAAP) - numerator | | $ | 110,328 | | $ | 95,776 | | | $ | 112,848 | | $ | 103,939 | | $ | 331,510 | | $ | 301,928 | |
Fully tax-equivalent net interest income | | | 112,121 | | | 95,702 | | | | 108,820 | | | 111,512 | | | 331,300 | | | 311,363 | |
Noninterest revenues | | | 13,495 | | | 65,673 | | | | 67,586 | | | 65,249 | | | 147,065 | | | 195,019 | |
Acquired non-PCD loan accretion | | | (1,079) | | | (734) | | | | (948) | | | (1,397) | | | (2,913) | | | (3,154) | |
Unrealized gain on equity securities | | | 0 | | | (2) | | |||||||||||||
Unrealized loss on equity securities | | | 49 | | | 4 | | | 99 | | | 24 | | |||||||
Loss on sales of investment securities | | | 52,329 | | | 0 | | | | 0 | | | 0 | | | 52,329 | | | 0 | |
Gain on debt extinguishment | | | (242) | | | 0 | | | | 0 | | | 0 | | | (242) | | | 0 | |
Operating revenues (non-GAAP) - denominator | | $ | 176,624 | | $ | 160,639 | | | $ | 175,507 | | $ | 175,368 | | $ | 527,638 | | $ | 503,252 | |
Efficiency ratio (non-GAAP) | | | 62.5 | % | | 59.6 | % | |||||||||||||
Operating efficiency ratio (non-GAAP) | | | 64.3 | % | | 59.3 | % | | 62.8 | % | | 60.0 | % |
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| | | | | | | | | | | | | | | | | | | | |
| | March 31, |
| December 31, |
| March 31, | | | September 30, |
| December 31, |
| September 30, | | ||||||
(000’s omitted) | | 2023 | | 2022 | | 2022 |
| | 2023 | | 2022 | | 2022 |
| ||||||
Balance sheet data - at end of quarter | | | | | | | | | |
| | | | | | | | | |
|
Total assets | | | | | | | | | |
| | | | | | | | | |
|
Total assets (GAAP) | | $ | 15,255,953 | | $ | 15,835,651 | | $ | 15,625,883 | | | $ | 15,386,322 | | $ | 15,835,651 | | $ | 15,594,547 | |
Intangible assets | |
| (900,914) | |
| (902,837) | |
| (863,038) | | ||||||||||
Deferred taxes on intangible assets | |
| 45,369 | |
| 46,130 | |
| 43,968 | | ||||||||||
Goodwill and intangible assets, net | |
| (901,334) | |
| (902,837) | |
| (909,224) | | ||||||||||
Deferred taxes on goodwill and intangible assets, net | |
| 44,593 | |
| 46,130 | |
| 48,893 | | ||||||||||
Total tangible assets (non-GAAP) | | $ | 14,400,408 | | $ | 14,978,944 | | $ | 14,806,813 | | | $ | 14,529,581 | | $ | 14,978,944 | | $ | 14,734,216 | |
| | | | | | | | | | | | | | | | | | | | |
Total common equity | |
| | |
| | |
| | | |
| | |
| | |
| | |
Shareholders' equity (GAAP) | | $ | 1,634,013 | | $ | 1,551,705 | | $ | 1,852,103 | | | $ | 1,554,939 | | $ | 1,551,705 | | $ | 1,461,163 | |
Intangible assets | |
| (900,914) | |
| (902,837) | |
| (863,038) | | ||||||||||
Deferred taxes on intangible assets | |
| 45,369 | |
| 46,130 | |
| 43,968 | | ||||||||||
Goodwill and intangible assets, net | |
| (901,334) | |
| (902,837) | |
| (909,224) | | ||||||||||
Deferred taxes on goodwill and intangible assets, net | |
| 44,593 | |
| 46,130 | |
| 48,893 | | ||||||||||
Total tangible common equity (non-GAAP) | | $ | 778,468 | | $ | 694,998 | | $ | 1,033,033 | | | $ | 698,198 | | $ | 694,998 | | $ | 600,832 | |
| | | | | | | | | | | | | | | | | | | | |
Shareholder's equity-to-assets ratio | | | | | | | | | | | ||||||||||
Shareholders' equity-to-assets ratio | | | | | | | | | | | ||||||||||
Total shareholders' equity (GAAP) - numerator | | $ | 1,634,013 | | $ | 1,551,705 | | $ | 1,852,103 | | | $ | 1,554,939 | | $ | 1,551,705 | | $ | 1,461,163 | |
Total assets (GAAP) - denominator | | $ | 15,255,953 | | $ | 15,835,651 | | $ | 15,625,883 | | | $ | 15,386,322 | | $ | 15,835,651 | | $ | 15,594,547 | |
Shareholders' equity-to-assets ratio (GAAP) | | | 10.71 | % | | 9.80 | % | | 11.85 | % | | | 10.11 | % | | 9.80 | % | | 9.37 | % |
| | | | | | | | | | | | | | | | | | | | |
Tangible equity-to-assets ratio at quarter end | |
| | |
| | |
| | | ||||||||||
Tangible equity-to-assets ratio | |
| | |
| | |
| | | ||||||||||
Total tangible common equity (non-GAAP) - numerator | | $ | 778,468 | | $ | 694,998 | | $ | 1,033,033 | | | $ | 698,198 | | $ | 694,998 | | $ | 600,832 | |
Total tangible assets (non-GAAP) - denominator | | $ | 14,400,408 | | $ | 14,978,944 | | $ | 14,806,813 | | | $ | 14,529,581 | | $ | 14,978,944 | | $ | 14,734,216 | |
Tangible equity-to-assets ratio at quarter end (non-GAAP) | |
| 5.41 | % |
| 4.64 | % |
| 6.98 | % | ||||||||||
Tangible equity-to-assets ratio (non-GAAP) | |
| 4.81 | % |
| 4.64 | % |
| 4.08 | % |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates, prices or credit risk. Credit risk associated with the Company’s loan portfolio has been previously discussed in the asset quality section of the MD&A. Management believes that the tax risk of the Company’s municipal investments associated with potential future changes in statutory, judicial and regulatory actions is minimal. Treasury, agency, mortgage-backed and collateralized mortgage obligation securities issued by government agencies comprise 88.9%88.4% of the total portfolio and are currently rated AAA by Moody’s Investor Services and AA+ by Standard & Poor’s. Obligations of state and political subdivisions account for 10.9%11.4% of the total portfolio, of which, 96.2% carry a minimum rating of A-. The remaining 0.2% of the portfolio is comprised of other investment grade securities. The Company does not have material foreign currency exchange rate risk exposure. Therefore, almost all the market risk in the investment portfolio is related to interest rates.
The ongoing monitoring and management of both interest rate risk and liquidity over the short and long term time horizons is an important component of the Company’s asset/liability management process, which is governed by guidelines established in the policies reviewed and approved annually by the Company’s Board. The Board delegates responsibility for carrying out the policies to the ALCO, which meets each month. The committee is made up of the Company’s senior management as well as regional and line-of-business managers who oversee specific earning asset classes and various funding sources. As the Company does not believe it is possible to reliably predict future interest rate movements, it has maintained an appropriate process and set of measurement tools, which enables it to identify and quantify sources of interest rate risk in varying rate environments. The primary tool used by the Company in managing interest rate risk is income simulation. This begins with the development of a base case scenario, which projects net interest income (“NII”) over the next twelve month period. The base case scenario NII may increase or decrease significantly from quarter to quarter reflective of changes during the most recent quarter in the Company’s: (i) earning assets and liabilities balances, (ii) composition of earning assets and liabilities, (iii) earning asset yields, (iv) cost of funds and (v) model projections, as well as current market interest rates, including the slope of the yield curve and projected changes in the slope of the yield curve over the twelve month period. The direction of interest rates, the slope of the yield curve, the modeled changes in deposit balances and the cost of funds, including, the Company’s deposit and funding betas are not easily predicted in the current market environment, and therefore, a wide variety of strategic balance sheet and treasury yield curve scenarios are modeled on an ongoing basis.
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The following reflects the Company'sCompany’s estimated NII sensitivity as compared to the base case scenario over the subsequent twelve months based on:
● | Balance sheet levels using |
● | The model assumes the Company’s average deposit balances will |
● | The model assumes the Company’s average earning asset balances will |
● | Cash flows on earning assets are based on contractual maturity, optionality, and amortization schedules along with applicable prepayments derived from internal historical data and external sources. |
● | The model assumes no additional investment security purchases over the next twelve months. Investment cash flows will be used to pay down overnight borrowings and fund loan growth. |
● | In the rising rates scenarios, the prime rate, federal funds, and treasury curve rates are assumed to move up/down in a parallel manner by the amounts listed below over a 12-month period. Deposit balance and mix changes and the resultant deposit and funding betas are assumed to move in a manner that reflects the Company’s (i) long-term historical relationship between the Company’s deposit rate movement and changes in the federal funds rate, (ii) recent interest rate cycle experience, (iii) significant management judgment and (iv) other factors, including recent market behaviors of customers and competitors. |
Net Interest Income Sensitivity Model
| | | | | | | | | | | | |
|
| | Calculated annualized increase |
| Calculated annualized increase |
|
| Calculated annualized increase |
| Calculated annualized increase |
| |
| | | (decrease) in projected net interest | | (decrease) in projected net interest |
| | (decrease) in projected net interest | | (decrease) in projected net interest |
| |
| | | income at March 31, 2023 | | income at March 31, 2023 |
| | income at September 30, 2023 | | income at September 30, 2023 |
| |
Interest rate scenario | | | (000’s omitted) | | (%) |
| | (000’s omitted) | | (%) |
| |
+200 basis points | | $ | (14,538) |
| (3.3) | % | | $ | (12,555) |
| (2.8) | % |
+100 basis points | | $ | 190 |
| 0.0 | % | | $ | (6,402) |
| (1.4) | % |
-100 basis points | | $ | 16,903 |
| 3.8 | % | | $ | 4,381 |
| 1.0 | % |
-200 basis points | | $ | 14,205 |
| 3.2 | % | | $ | 6,910 |
| 1.5 | % |
Projected NII over the 12-month forecast period decreases in the up 100 and up 200 rate environmentenvironments largely due to deposits and overnight borrowings repricing higher in year 1, which are only partially offset by loans repricing higher. Projected NII is fairly neutral in the up 100 rate environment. Over the longer time period, the growth in NII begins to improve in all rising rate environments as the impact from lower yielding assets maturing and being replaced at higher rates is significantly more material than the increase in funding costs.
Projected NII increases in the down 100 and down 200 rate environments due to lower funding costs which are partially offset by lower income on loans.
The analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions: the nature and timing of interest rate levels (including yield curve shape), prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and other factors. While the assumptions are developed based upon a reasonable outlook for national and local economic and market conditions, the Company cannot make any assurances as to the predictive efficacy of these assumptions, including how customer preferences or competitor influences might change. Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates and other developments.
5261
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rule 13a -15(e) and 15d – 15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”), designed to ensure information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on management’s evaluation of the effectiveness of the Company’s disclosure controls and procedures, with the participation of the Chief Executive Officer and the Chief Financial Officer, it has concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, these disclosure controls and procedures were effective as of March 31,September 30, 2023.
Changes in Internal Control over Financial Reporting
The Company regularly assesses the adequacy of its internal controls over financial reporting. There have been no changes in the Company’s internal controls over financial reporting in connection with the evaluation referenced in the paragraph above that occurred during the Company’s quarter ended March 31,September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
62
Part II.Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings or other matters in which claims for monetary damages are asserted. As of March 31,September 30, 2023, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters against the Company or its subsidiaries will be material to the Company’s consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such matters. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable beyond the existing recorded liabilities, is not believed to be between $0 and $1 millionmaterial in the aggregate. This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties. Information on current legal proceedings and other matters is set forth in Note IJ to the consolidated financial statements included under Part I, Item 1. AlthoughWhile the Company does not believe that the outcome of pending or threatened litigation or other matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
53
Item 1A. Risk Factors
In addition to the other information containedThere has not been any material change in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously discloseddisclosure from that contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on March 1, 2023. These are not2023, and the only risks the Company faces. Additional risks not presently known to the Company, or that are currently deemed immaterial, may also adversely affect the Company’s business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements,for the risk factor set forth below also is a cautionary statement identifying important factors that could causequarter ended March 31, 2023, as filed with the Company’s actual results to differ materially from those expressed in any forward-looking statements made by orSEC on behalf of the Company.
External and Market-Related Risk
Recent negative developments affecting the banking industry have eroded customer confidence in the banking system and may have adverse impacts on the Company’s business.
The recent high-profile collapse of certain U.S. banks has generated significant market volatility among publicly traded bank holding companies and, in particular, community and regional banks. These market developments have negatively impacted customer confidence in the safety and soundness of community and regional banks. As a result, customers may choose to move or maintain deposits with larger financial institutions or outside of the banking industry, which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the federal regulators have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in community and regional banks and the banking system more broadly or that any future bank failures will receive the same treatment.
Any regulatory examination scrutiny or new regulatory requirements arising from the recent bank failures could increase the Company’s expenses, reduce the Company’s revenues and affect the Company’s operations.
The Company anticipates increased regulatory scrutiny, within the course of routine examinations and new regulations designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability.May 10, 2023.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
a)Not applicable. b)Not applicable. c) |
At its December 2022 meeting, the Board approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period beginning January 1, 2023. Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities. The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company’s discretion. |
54
The following table presents stock purchases made during the firstthird quarter of 2023:
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | |
| | Total | | | | Total Number of Shares | | Maximum Number of | | Total | | | | Total Number of Shares | | Maximum Number of | ||
| | Number of | | Average | | Purchased as Part of | | Shares That May Yet Be | | Number of | | Average | | Purchased as Part of | | Shares That May Yet Be | ||
| | Shares | | Price Paid | | Publicly Announced | | Purchased Under the Plans | | Shares | | Price Paid | | Publicly Announced | | Purchased Under the Plans | ||
Period |
| Purchased |
| Per Share |
| Plans or Programs |
| or Programs |
| Purchased |
| Per Share |
| Plans or Programs |
| or Programs | ||
January 1-31, 2023 | | 929 | | $ | 64.13 | | 0 | | 2,697,000 | |||||||||
February 1-28, 2023 | | 0 | | | 0.00 | | 0 | | 2,697,000 | |||||||||
March 1-31, 2023 | | 200,000 | | | 54.53 | | 200,000 | | 2,497,000 | |||||||||
July 1-31, 2023 | | 1,172 | | $ | 44.36 | | 0 | | 2,297,000 | |||||||||
August 1-31, 2023 | | 100,000 | | | 51.08 | | 100,000 | | 2,197,000 | |||||||||
September 1-30, 2023 | | 0 | | | 0.00 | | 0 | | 2,197,000 | |||||||||
Total (1) |
| 200,929 | | $ | 54.58 |
| 200,000 |
| |
| 101,172 | | $ | 51.00 |
| 100,000 |
| |
(1) | Included in the common shares repurchased were |
63
Item 3.Defaults Upon Senior Securities
Not applicable.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
a)Not applicable.
b)Not applicable.
c)Certain of the Company’s officers or directors have made elections to participate in, and are participating in, the Company’s dividend reinvestment plan and 401(k) plan, and have made, and may from time to time make, elections to have shares withheld to cover withholding taxes or pay the exercise price of options or the settlement of restricted stock, each of which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
5564
Item 6.Exhibits
|
|
|
Exhibit No. |
| Description |
| | |
10.2 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
(1) | Denotes management contract or compensatory plan or arrangement. |
(2) | Filed herewith. |
Furnished herewith. |
5665
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Community Bank System, Inc.
Date: | /s/ Mark E. Tryniski |
| Mark E. Tryniski, President and Chief Executive Officer |
| |
|
|
Date: | /s/ Joseph E. Sutaris |
| Joseph E. Sutaris, Treasurer and Chief Financial Officer |
5766