Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

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.

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 ☑

The registrant had ~~16,019,384~~15,828,899 shares of Common Stock, $0.01 par value, outstanding as of May 1, ~~2020.~~2021.

(Dollars in thousands, except share and per share data)	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020
ASSETS
Cash and due from banks	$	152,168		$	112,947		$	344,790		$	93,878
Securities available for sale, at fair value		444,845			417,917			753,489			628,059
Securities held to maturity, at amortized cost (net of allowance for credit losses of $13 and $0, respectively) (fair value of $354,571 and $363,259, respectively)		346,239			359,000
Securities held to maturity, at amortized cost (net of allowance for credit losses of $7 and $7, respectively) (fair value of $264,329 and $282,035, respectively)								256,127			271,966
Loans held for sale		3,822			4,224			5,685			4,305
Loans (net of allowance for credit losses of $43,356 and $30,482, respectively)		3,193,871			3,190,505
Loans (net of allowance for credit losses of $49,828 and $52,420, respectively)								3,604,558			3,542,718
Company owned life insurance		69,414			68,942			101,564			100,895
Premises and equipment, net		41,426			41,424			39,820			40,610
Goodwill and other intangible assets, net		74,629			74,923			74,528			73,789
Other assets		145,354			114,296			148,495			156,086
Total assets	$	4,471,768		$	4,384,178		$	5,329,056		$	4,912,306
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	732,917		$	707,752		$	1,099,608		$	1,018,549
Interest-bearing demand		724,670			627,842			873,390			731,885
Savings and money market		1,270,253			1,039,892			1,826,621			1,642,340
Time deposits		1,059,345			1,180,189			916,395			885,593
Total deposits		3,787,185			3,555,675			4,716,014			4,278,367
Short-term borrowings		109,500			275,500			—			5,300
Long-term borrowings, net of issuance costs of $709 and $727, respectively		39,291			39,273
Long-term borrowings, net of issuance costs of $1,321 and $1,377, respectively								73,679			73,623
Other liabilities		96,399			74,783			73,079			86,653
Total liabilities		4,032,375			3,945,231			4,862,772			4,443,943
Shareholders’ equity:
Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,435 shares issued		143			143			143			143
Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized; 171,847 shares issued		17,185			17,185
Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized; 171,786 and 171,847 shares issued, respectively								17,179			17,185
Total preferred equity		17,328			17,328			17,322			17,328
Common stock, $0.01 par value; 50,000,000 shares authorized; 16,099,556 shares issued		161			161			161			161
Additional paid-in capital		124,445			124,582			124,891			125,118
Retained earnings		301,243			313,364			340,923			324,850
Accumulated other comprehensive loss		(2,082	)		(14,513	)
Treasury stock, at cost – 80,172 and 96,657 shares, respectively		(1,702	)		(1,975	)
Accumulated other comprehensive (loss) income								(10,572	)		2,128
Treasury stock, at cost – 270,657 and 57,630 shares, respectively								(6,441	)		(1,222	)
Total shareholders’ equity		439,393			438,947			466,284			468,363
Total liabilities and shareholders’ equity	$	4,471,768		$	4,384,178		$	5,329,056		$	4,912,306

(In thousands, except per share amounts)	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Interest income:
Interest and fees on loans	$	36,860		$	36,466		$	37,059		$	36,860
Interest and dividends on investment securities		4,582			4,946			4,187			4,582
Other interest income		211			102			27			211
Total interest income		41,653			41,514			41,273			41,653
Interest expense:
Deposits		7,019			6,799			2,235			7,019
Short-term borrowings		892			2,305			119			892
Long-term borrowings		618			618			1,062			618
Total interest expense		8,529			9,722			3,416			8,529
Net interest income		33,124			31,792			37,857			33,124
Provision for credit losses		13,915			1,193
Provision (benefit) for credit losses								(1,981	)		13,915
Net interest income after provision for credit losses		19,209			30,599			39,838			19,209
Noninterest income:
Service charges on deposits		1,587			1,680			1,292			1,587
Insurance income		1,349			1,378			1,396			1,349
ATM and debit card		1,602			1,443
Card interchange income								1,958			1,602
Investment advisory		2,246			2,216			2,772			2,246
Company owned life insurance		465			410			657			465
Investments in limited partnerships		213			232			855			213
Loan servicing		7			110			97			7
Income from derivative instruments, net		746			168			1,875			746
Net gain on sale of loans held for sale		304			182			1,078			252
Net gain (loss) on investment securities		221			(53	)
Net gain on other assets		64			49
Net gain on investment securities								74			221
Net (loss) gain on other assets								(5	)		64
Loss on tax credit investments		(40	)		-			(85	)		(40	)
Other		1,198			1,305			995			1,198
Total noninterest income		9,962			9,120			12,959			9,910
Noninterest expense:
Salaries and employee benefits		15,014			14,001			14,465			15,014
Occupancy and equipment		3,756			3,473			3,382			3,756
Professional services		2,152			1,158			1,895			2,152
Computer and data processing		2,673			2,336			3,121			2,673
Supplies and postage		553			534			484			553
FDIC assessments		372			512			765			372
Advertising and promotions		555			520			324			555
Amortization of intangibles		294			323			271			294
Other		2,353			2,314			2,033			2,301
Total noninterest expense		27,722			25,171			26,740			27,670
Income before income taxes		1,449			14,548			26,057			1,449
Income tax expense		322			3,027			5,347			322
Net income	$	1,127		$	11,521		$	20,710		$	1,127
Preferred stock dividends		365			365			365			365
Net income available to common shareholders	$	762		$	11,156		$	20,345		$	762
Earnings per common share (Note 2):
Earnings per common share (Note 3):
Basic	$	0.05		$	0.70		$	1.28		$	0.05
Diluted	$	0.05		$	0.70		$	1.27		$	0.05
Cash dividends declared per common share	$	0.26		$	0.25		$	0.27		$	0.26

(Dollars in thousands)	Three months ended March 31,					Three months ended March 31,
	2020		2019			2021			2020
Net income	$	1,127	$	11,521		$	20,710		$	1,127
Other comprehensive income (loss), net of tax:
Other comprehensive (loss) income, net of tax:
Securities available for sale and transferred securities		12,106		5,503			(14,402	)		12,106
Hedging derivative instruments		91		(254	)		1,564			91
Pension and post-retirement obligations		234		261			138			234
Total other comprehensive income, net of tax		12,431		5,510
Total other comprehensive (loss) income, net of tax							(12,700	)		12,431
Comprehensive income	$	13,558	$	17,031		$	8,010		$	13,558

(Dollars in thousands, except per share data)	Preferred Equity		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity			Preferred Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2019	$	17,328	$	161	$	124,582		$	313,364		$	(14,513	)	$	(1,975	)	$	438,947
Cumulative-effect adjustment		—		—		—			(8,719	)		—			—			(8,719	)
Balance at January 1, 2020	$	17,328	$	161	$	124,582		$	304,645		$	(14,513	)	$	(1,975	)	$	430,228
Balance at December 31, 2020																				$	17,328		$	161	$	125,118		$	324,850		$	2,128		$	(1,222	)	$	468,363
Comprehensive income:
Net income		—		—		—			1,127			—			—			1,127			—			—		—			20,710			—			—			20,710
Other comprehensive income, net of tax		—		—		—			—			12,431			—			12,431
Other comprehensive loss, net of tax																					—			—		—			—			(12,700	)		—			(12,700	)
Common stock issued																					—			—		3			—			—			298			301
Purchases of common stock for treasury		—		—		—			—			—			(196	)		(196	)		—			—		—			—			—			(5,963	)		(5,963	)
Purchases of 8.48% preferred stock																					(6	)		—		—			—			—			—			(6	)
Share-based compensation plans:
Share-based compensation		—		—		332			—			—			—			332			—			—		216			—			—			—			216
Restricted stock units released		—		—		(469	)		—			—			469			—			—			—		(446	)		—			—			446			—
Cash dividends declared:
Series A 3% Preferred-$0.75 per share		—		—		—			(1	)		—			—			(1	)		—			—		—			(1	)		—			—			(1	)
Series B-1 8.48% Preferred-$2.12 per share		—		—		—			(364	)		—			—			(364	)		—			—		—			(364	)		—			—			(364	)
Common-$0.26 per share		—		—		—			(4,164	)		—			—			(4,164	)
Balance at March 31, 2020	$	17,328	$	161	$	124,445		$	301,243		$	(2,082	)	$	(1,702	)	$	439,393
Common-$0.27 per share																					—			—		—			(4,272	)		—			—			(4,272	)
Balance at March 31, 2021																				$	17,322		$	161	$	124,891		$	340,923		$	(10,572	)	$	(6,441	)	$	466,284

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (Continued)

(Dollars in thousands, except per share data)	Preferred Equity		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity			Preferred Equity		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2018	$	17,328	$	161	$	122,704		$	279,867		$	(21,281	)	$	(2,486	)	$	396,293
Balance at December 31, 2019																				$	17,328	$	161	$	124,582		$	313,364		$	(14,513	)	$	(1,975	)	$	438,947
Cumulative-effect adjustment		—		—		—			(710	)		—			—			(710	)		—		—		—			(8,719	)		—			—			(8,719	)
Balance at January 1, 2019	$	17,328	$	161	$	122,704		$	279,157		$	(21,281	)	$	(2,486	)	$	395,583
Balance at January 1, 2020																				$	17,328	$	161	$	124,582		$	304,645		$	(14,513	)	$	(1,975	)	$	430,228
Comprehensive income:
Net income		—		—		—			11,521			—			—			11,521			—		—		—			1,127			—			—			1,127
Other comprehensive income, net of tax		—		—		—			—			5,510			—			5,510			—		—		—			—			12,431			—			12,431
Reclassification of income tax effects		—		—		—			2,783			(2,783	)		—			—
Purchases of common stock for treasury		—		—		—			—			—			(193	)		(193	)		—		—		—			—			—			(196	)		(196	)
Share-based compensation plans:
Share-based compensation		—		—		182			—			—			—			182			—		—		332			—			—			—			332
Restricted stock units released		—		—		(362	)		—			—			362			—			—		—		(469	)		—			—			469			—
Cash dividends declared:
Series A 3% Preferred-$0.75 per share		—		—		—			(1	)		—			—			(1	)		—		—		—			(1	)		—			—			(1	)
Series B-1 8.48% Preferred-$2.12 per share		—		—		—			(364	)		—			—			(364	)		—		—		—			(364	)		—			—			(364	)
Common-$0.25 per share		—		—		—			(3,985	)		—			—			(3,985	)
Balance at March 31, 2019	$	17,328	$	161	$	122,524		$	289,111		$	(18,554	)	$	(2,317	)	$	408,253
Common-$0.26 per share																					—		—		—			(4,164	)		—			—			(4,164	)
Balance at March 31, 2020																				$	17,328	$	161	$	124,445		$	301,243		$	(2,082	)	$	(1,702	)	$	439,393

(Dollars in thousands)	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Cash flows from operating activities:
Net income	$	1,127		$	11,521		$	20,710		$	1,127
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,973			2,103			1,950			1,973
Net amortization of premiums on securities		562			528			1,206			562
Provision for credit losses		13,915			1,193
(Benefit) provision for credit losses								(1,981	)		13,915
Share-based compensation		332			182			216			332
Deferred income tax expense (benefit)		(276	)		951			1,658			(276	)
Proceeds from sale of loans held for sale		9,934			5,992			21,314			9,934
Originations of loans held for sale		(9,228	)		(5,011	)		(21,616	)		(9,280	)
Income on company owned life insurance		(465	)		(410	)		(657	)		(465	)
Net gain on sale of loans held for sale		(304	)		(182	)		(1,078	)		(252	)
Net (gain) loss on investment securities		(221	)		53
Net gain on other assets		(64	)		(49	)
(Increase) decrease in other assets		(31,708	)		1,471
Increase (decrease) in other liabilities		18,745			(2,984	)
Net gain on investment securities								(74	)		(221	)
Net loss (gain) on other assets								5			(64	)
Noncash restructuring charges against assets								6			—
Decrease (increase) in other assets								12,818			(31,708	)
(Decrease) increase in other liabilities								(14,172	)		18,745
Net cash provided by operating activities		4,322			15,358			20,305			4,322
Cash flows from investing activities:
Purchases of available for sale securities		(44,812	)		(7,681	)		(204,695	)		(44,812	)
Purchases of held to maturity securities		(1,364	)		(4,466	)		(1,265	)		(1,364	)
Proceeds from principal payments, maturities and calls on available for sale securities		13,847			25,390			32,416			30,947
Proceeds from principal payments, maturities and calls on held to maturity securities		13,827			12,842			16,783			13,827
Proceeds from sales of securities available for sale		20,257			4,948			26,675			3,157
Net loan originations		(27,029	)		(24,361	)		(60,135	)		(27,029	)
Purchases of company owned life insurance, net of proceeds received		(7	)		(24	)		(12	)		(7	)
Proceeds from sales of other assets		427			250			—			427
Purchases of premises and equipment		(1,196	)		(575	)		(290	)		(1,196	)
Net cash (used in) provided by investing activities		(26,050	)		6,323
Cash consideration paid for acquisition, net of cash acquired								(713	)		—
Net cash used in investing activities								(191,236	)		(26,050	)
Cash flows from financing activities:
Net increase in deposits		231,510			141,930			437,647			231,510
Net decrease in short-term borrowings		(166,000	)		(182,200	)		(5,300	)		(166,000	)
Repurchase of preferred stock								(6	)		—
Purchases of common stock for treasury		(196	)		(193	)		(5,963	)		(196	)
Cash dividends paid to common and preferred shareholders		(4,365	)		(4,187	)		(4,535	)		(4,365	)
Net cash provided (used in) by financing activities		60,949			(44,650	)
Net increase (decrease) in cash and cash equivalents		39,221			(22,969	)
Net cash provided by financing activities								421,843			60,949
Net increase in cash and cash equivalents								250,912			39,221
Cash and cash equivalents, beginning of period		112,947			102,755			93,878			112,947
Cash and cash equivalents, end of period	$	152,168		$	79,786		$	344,790		$	152,168

Financial Institutions, Inc. (the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York”). The Company provides diversified financial services through its subsidiaries, Five Star Bank, SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the “Bank”). The Bank also has indirect lending network relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated and contain adequate disclosure to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s ~~2019~~2020 Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

~~On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments~~. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the reserve for credit losses. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. The Company adopted ASU 2016-13 using the modified retrospective approach. Results for the periods beginning after January 1, 2020 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net reduction of retained earnings of $8.7 million upon adoption. The transition adjustment includes an increase in credit-related reserves of $9.6 million, $14 thousand, and $2.1 million for loans, held to maturity investment securities and unfunded commitments, respectively, net of the corresponding increase in deferred tax assets of $3.0 million.

~~The allowance for credit losses is~~ ~~evaluated on a regular basis and~~ established through charges to earnings in the form of a provision for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. ~~This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.~~

Portfolio segmentation is defined as the pooling of loans based upon similar risk characteristics such that quantitative methodologies and qualitative adjustment factors for estimating the allowance for credit losses is constructed for each segment. The Company has identified six portfolio segments of loans including Commercial Loans/Lines, Commercial Mortgage, Indirect Loans, Direct Loans, Residential Lines of Credit, and Residential Loans

The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans, troubled debt restructurings (“TDRs”), and other loans deemed appropriate by management.

The Company’s HTM debt securities are also required to utilize the current expected credit losses approach to estimate expected credit losses. The Company’s HTM debt securities included securities that are issued by U.S. government or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. The Company also carries a portfolio of HTM municipal bonds. The Company measures its allowance for credit losses on HTM debt securities on a collective basis by major security type. The estimate is based on historical credit losses, if any, adjusted for current conditions and reasonable and supportable forecasts. The Company considers the nature of the collateral, potential future changes in collateral values and available loss information.

For AFS securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

~~Upon adoption of ASU 2016-13 and its related amendments on January 1, 2020, the Company made the following elections regarding accrued interest receivable:~~

~~(1.)BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

The reserve for unfunded commitments (the “Unfunded Reserve”) represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The Unfunded Reserve is recognized as a liability (other liabilities in the consolidated statements of financial condition), with adjustments to the reserve recognized as a provision for credit loss expense in the consolidated statements of income. The Unfunded Reserve is determined by estimating expected future fundings, under each segment, and applying the expected loss rates. Expected future fundings are based on historical averages of funding rates (i.e., the likelihood of draws taken). To estimate future fundings on unfunded balances, current funding rates are compared to historical funding rates.

~~Operating,~~Operational, Accounting and Reporting ~~Considerations related~~Impacts Related to the COVID-19 Pandemic

The COVID-19 pandemic has negatively impacted the global economy, including our operating footprint of Western and Central New York. In response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act ~~provides~~provided an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to the Company include, but are not limited to:

Also, in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:

Effective March 23, 2020 through July 9, 2020, for consumer customers, the Bank ~~will be waiving~~waived early CD penalty fees for withdrawals up to $20,000 (limited to one penalty-free withdrawal per CD account); ~~eliminating~~eliminated all insufficient funds (overdrafts) and returned item fees; ~~eliminating~~eliminated all Pay by Phone fees; ~~waiving~~waived all late fees; ~~offering~~offered the opportunity for monthly mortgage, home equity loan or home equity line payment relief; ~~offering~~offered the opportunity to defer unsecured consumer loans or lines of credit and secured consumer loans and lines of credit payments; and ~~offering~~offered unsecured personal loans up to $5,000, up to 60 months at 2.95% APR subject to credit ~~approval (additional terms~~approval. ATM access fees were reinitiated on September 19, 2020.

As part of the first round of PPP loans we have helped more than 1,700 customers obtain more than $270 million in loans as of December 31, 2020. Of those loans, we have helped customers complete the forgiveness process for approximately $87 million of loans in the first three months of 2021. Also, during the first three months of 2021, we have helped customers obtain approximately $96 million of new PPP loans under the second round of the PPP. Additionally, approximately 4% of our commercial loan and ~~conditions may apply).~~

~~Business~~mortgage customers, ~~are being faced~~1% of our residential real estate loans and lines customers and less than 1% of our indirect loans customers have active payment deferrals, in accordance with ~~challenging and unique circumstances. The Bank’s relationship bankers are highly skilled in providing tailored financial solutions designed to meet~~ the ~~specific, individual needs of each business and they are actively reaching out to each business customer to understand how~~previously noted loan modifications under the ~~Bank can help, given each unique business circumstance.~~ CARES Act or agencies guidelines.

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders’ equity as previously reported.

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable subsequent events.

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates relate to the determination of the allowance for credit losses, the carrying value of goodwill and deferred tax assets, and assumptions used in the defined benefit pension plan accounting.

Supplemental cash flow information is summarized as follows for the three months ended March 31 (in thousands):

	2020		2019		2021		2020
Supplemental information:
Cash paid for interest	$	8,418	$	8,524	$	3,173	$	8,418
Cash paid for income taxes		1,000		1,248		1,500		1,000
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		646		—		—		646
Accrued and declared unpaid dividends		4,259		4,350		4,637		4,259
Decrease in net unsettled security purchases		—		1,473
Common stock issued for acquisition						301		—
Assets acquired and liabilities assumed in business combinations:
Fair value of assets acquired						449		—

In April 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. With respect to Topic 815, Derivatives and Hedging, ASU 2019-04 clarifies that the reclassification of a debt security from Held to Maturity (“HTM”) to Available for Sale (“AFS”) under the transition guidance in ASU No. 2017-12, ~~Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities~~, would not (1) call into question the classification of other HTM securities, (2) be required to actually designate any reclassified security in a last-of-layer hedge, or (3) be restricted from selling any reclassified security. As part of the transition of ASU 2019-04, entities may reclassify securities that would qualify for designation as the hedged item in a last-of-layer hedging relationship from HTM to AFS; however, entities that already made such a reclassification upon their adoption of ASU 2017-12 are precluded from reclassifying additional securities. The Company did not reclassify any securities from HTM to AFS upon adoption of ASU 2017-12. The Company elected to early adopt the amendments to Topic 815 in December 2019, resulting in the reclassification of $26.2 million of qualified investment securities from HTM to AFS. With respect to Topic 326, Financial Instruments - Credit Losses, ASU 2019-04 clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. With respect to Topic 825, Financial Instruments, on recognizing and measuring financial instruments, ASU 2019-04 addresses the scope of the guidance, the requirement for remeasurement under ASC 820 (Fair Value Measurement) when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. The amendments to Topic 326 and the amendments to Topic 825, under ASU 2019-04, were adopted as of January 1, 2020 and did not have a significant impact on the Company’s financial statements.

In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), who is responsible for regulating the London Interbank Offered Rate (“LIBOR”), announced its intention that it would no longer be necessary to persuade or compel its panel banks to submit LIBOR rates after December 31, 2021. On March 5, 2021, the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, released the results of its consultation on the cessation timeline for certain LIBOR tenors. In coordination with the IBA, the FCA also confirmed when certain LIBOR tenors will cease to exist. The results of the consultation indicated that certain LIBOR tenors (overnight, one-month, three-month, six-month, and twelve-month USD LIBOR) will be extended to June 30, 2023 to allow some legacy contracts that cannot be easily amended to mature on their current terms. Notwithstanding the extension of certain LIBOR tenors to 2023, banks may no longer offer new LIBOR-based contracts after December 31, 2021. Given that LIBOR is a widely used pricing index for loan and derivative contracts, a Company-wide initiative was introduced to assess all LIBOR exposures through the Company’s loan, deposit, borrowing and derivative categories, while developing a plan for the ultimate cessation of the index. In developing the transition plan, the Company has followed best practice recommendations from the Federal Reserve’s Alternative Reference Rate Committee, our third-party derivative advisor and the Internal Swaps and Derivatives Association. To date, the Company has identified the portion of loan notes that reference LIBOR, which are primarily representative of commercial relationships. Additionally, the Company has 1 designated derivative instrument that is utilized to hedge the LIBOR characteristic of a future dated borrowing (i.e. Federal Home Loan Bank Advance). In 2015, the Company issued $40 million in fixed to floating rate subordinated notes that currently bear a fixed rate of interest at 6.00% until April 2025, when the rate converts to a floating rate equal to three-month LIBOR plus 3.944%; the indenture under which the notes were issued includes language allowing an alternate index to be applied in the event that LIBOR becomes unavailable at the floating rate determination date. At this time, no other borrowing or deposit relationships have been identified that utilize LIBOR as an index.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative rates, such as SOFR. ASU 2020-04 became effective during the first quarter of 2020 and applies to contract modifications and amendments made as of the beginning of the reporting period including the ASU’s issuance date, March 12, 2020, through December 31, 2022. The adoption of this guidance in 2020 resulted in the application of certain practical expedients, which did not have a material effect on the Company's consolidated financial statements

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The ASU clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and applies through December 31, 2022. The Company is in the process of determining which optional expedients to elect, if any, as well as the timing and application of those elections. At this time, the Company does not expect any elections to have a significant impact on its financial statements.

On February 1, 2021, SDN completed the acquisition of the assets of Landmark Group (“Landmark”), an independent insurance brokerage firm. Consideration for the acquisition included common shares of Company stock and cash. As a result of the acquisition, SDN recorded goodwill of $611 thousand and other intangible assets of $399 thousand. The goodwill and other intangible assets are expected to be deductible for income tax purposes. The allocation of acquisition cost to the assets acquired and liabilities assumed and pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the Company’s consolidated financial statements.

On July 17, 2020, the Bank announced management’s decision to adapt to a full-service branch model to streamline retail branches to better align with shifting customer needs and preferences. The transformation resulted in 6 branch closures and a reduction in staffing. The announcement was the result of a nine-month comprehensive assessment of all lines of business and functional areas, conducted in partnership with a leading process improvement organization. The data-driven analysis identified, among other things, overlapping service areas, automation opportunities and streamlining of processes and operations that would enhance customer experiences and facilitate the long-term sustainability of current and future branches. The announced consolidations represented about 10 percent of the branch network and impacted approximately 6 percent of the total Company workforce. Where possible, those impacted were offered alternative roles or the opportunity to apply for open positions in other areas of the Company. Separated associates received a comprehensive severance package based on tenure.

In October 2020, the Company announced the planned closure of 1 additional branch that closed in January 2021. This location was not included in the branch consolidations announced in July, as alternative options were being considered and consolidation was not possible given its significant distance from other Bank branches.

The Company incurred total pre-tax expense related to the branch closures of approximately $1.7 million, including approximately $0.2 million in employee severance, $0.5 million in lease termination costs and $1.0 million in valuation adjustments on branch facilities. The Company recognized all of these expenses during 2020. The Company expects $0.9 million of total costs will result in future cash expenditures. The Company anticipates annual expense savings of approximately $2.7 million as a result of these branch closures.

The Company incurred 0 restructuring charges during the three months ended March 31, 2021 and 2020.

The following table represents the changes in the restructuring reserve (in thousands):

In contemplation of the transactions noted above, certain long-lived assets have met the held for sale criteria as of March 31, 2021. The Company reclassified $867 thousand from premises and equipment, net to other assets on the consolidated statement of financial condition as of March 31, 2021. NaN long-lived assets were reclassified as held for sale as of December 31, 2020.

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS (in thousands, except per share amounts).

	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Net income available to common shareholders	$	762		$	11,156		$	20,345		$	762
Weighted average common shares outstanding:
Total shares issued		16,100			16,056			16,100			16,100
Unvested restricted stock awards		(4	)		(3	)		(6	)		(4	)
Treasury shares		(90	)		(123	)		(205	)		(90	)
Total basic weighted average common shares outstanding		16,006			15,930			15,889			16,006
Incremental shares from assumed:
Exercise of stock options		—			—			—			—
Vesting of restricted stock awards		63			48			83			63
Total diluted weighted average common shares outstanding		16,069			15,978			15,972			16,069
Basic earnings per common share	$	0.05		$	0.70		$	1.28		$	0.05
Diluted earnings per common share	$	0.05		$	0.70		$	1.27		$	0.05

For each of the periods presented, average shares subject to the following instruments were excluded from the computation of diluted EPS because the effect would be ~~antidilutive:~~antidilutive (in thousands):

Stock options	—	—	—	—
Restricted stock awards	2	10	11	2
Total	2	10	11	2

The amortized cost and fair value of investment securities are summarized below (in thousands):

	Amortized			Unrealized		Unrealized		Fair		Amortized			Unrealized		Unrealized		Fair
	Cost			Gains		Losses		Value		Cost			Gains		Losses		Value
March 31, 2020
March 31, 2021
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	9,587		$	492	$	—	$	10,079	$	16,244		$	348	$	59	$	16,533
Mortgage-backed securities:
Federal National Mortgage Association		284,725			14,302		217		298,810		435,287			8,798		4,432		439,653
Federal Home Loan Mortgage Corporation		83,977			2,597		—		86,574		250,091			1,239		5,760		245,570
Government National Mortgage Association		20,271			338		165		20,444		21,605			495		126		21,974
Collateralized mortgage obligations:
Federal National Mortgage Association		23,182			530		36		23,676		22,361			89		43		22,407
Federal Home Loan Mortgage Corporation		4,808			—		48		4,760		6,943			—		22		6,921
Privately issued		—			502		—		502		—			431		—		431
Total mortgage-backed securities		416,963			18,269		466		434,766		736,287			11,052		10,383		736,956
Total available for sale securities	$	426,550		$	18,761	$	466	$	444,845	$	752,531		$	11,400	$	10,442	$	753,489
Securities held to maturity:
State and political subdivisions	$	187,401		$	2,797	$	3	$	190,195	$	139,264		$	3,767	$	—	$	143,031
Mortgage-backed securities:
Federal National Mortgage Association		11,908			530		—		12,438		10,147			522		—		10,669
Federal Home Loan Mortgage Corporation		6,703			245		—		6,948		5,521			193		—		5,714
Government National Mortgage Association		43,727			1,313		—		45,040		34,568			1,313		—		35,881
Collateralized mortgage obligations:
Federal National Mortgage Association		39,216			1,263		—		40,479		27,230			920		—		28,150
Federal Home Loan Mortgage Corporation		46,854			1,855		—		48,709		32,206			1,242		—		33,448
Government National Mortgage Association		10,443			319		—		10,762		7,198			238		—		7,436
Total mortgage-backed securities		158,851			5,525		—		164,376		116,870			4,428		—		121,298
Total held to maturity securities		346,252		$	8,322	$	3	$	354,571		256,134		$	8,195	$	—	$	264,329
Allowance for credit losses - securities		(13	)								(7	)
Total held to maturity securities, net	$	346,239								$	256,127
December 31, 2019
December 31, 2020
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	26,440		$	437	$	—	$	26,877	$	6,239		$	396	$	—	$	6,635
Mortgage-backed securities:
Federal National Mortgage Association		293,873			2,263		1,380		294,756		350,627			15,549		44		366,132
Federal Home Loan Mortgage Corporation		52,733			318		172		52,879		225,645			3,155		24		228,776
Government National Mortgage Association		14,065			60		4		14,121		22,107			830		—		22,937
Collateralized mortgage obligations:
Federal National Mortgage Association		23,834			—		57		23,777		3,047			97		—		3,144
Federal Home Loan Mortgage Corporation		4,907			—		18		4,889		—			—		—		-
Privately issued		—			618		—		618		—			435		—		435
Total mortgage-backed securities		389,412			3,259		1,631		391,040		601,426			20,066		68		621,424
Total available for sale securities	$	415,852		$	3,696	$	1,631	$	417,917	$	607,665		$	20,462	$	68	$	628,059

	Amortized		Unrealized		Unrealized		Fair		Amortized			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost			Gains		Losses		Value
December 31, 2019 (continued)
December 31, 2020 (continued)
Securities held to maturity:
State and political subdivisions	$	192,215	$	3,803	$	—	$	196,018	$	144,506		$	4,478	$	—	$	148,984
Mortgage-backed securities:
Federal National Mortgage Association		12,049		227		6		12,270		10,776			703		—		11,479
Federal Home Loan Mortgage Corporation		6,995		77		47		7,025		5,858			382		—		6,240
Government National Mortgage Association		45,758		306		128		45,936		37,084			1,578		—		38,662
Collateralized mortgage obligations:
Federal National Mortgage Association		41,561		150		256		41,455		29,988			1,075		—		31,063
Federal Home Loan Mortgage Corporation		49,389		307		103		49,593		35,897			1,581		—		37,478
Government National Mortgage Association		11,033		12		83		10,962		7,864			265		—		8,129
Total mortgage-backed securities		166,785		1,079		623		167,241		127,467			5,584		—		133,051
Total held to maturity securities	$	359,000	$	4,882	$	623	$	363,259		271,973		$	10,062	$	—	$	282,035
Allowance for credit losses - securities										(7	)
Total held to maturity securities, net									$	271,966

The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. For AFS debt securities, AIR totaled ~~$1.0 million as of March 31, 2020 and December 31, 2019. For HTM debt securities, AIR totaled $1.7~~$1.4 million and $1.2 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020. For HTM debt securities, AIR totaled $1.3 million and $905 thousand as of March 31, 2021 and December 31, 2020, respectively. AIR is included in other assets on the Company’s consolidated statements of financial condition.

For each of the three months ended March 31, 2021 and 2020, credit loss expense (credit) for HTM investment securities was less than $(1) thousand.

Investment securities with a total fair value of $660.1 million and ~~$676.9~~$567.4 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

	Three months ended March 31,				Three months ended March 31,
	2020		2019		2021		2020
Proceeds from sales	$	20,257	$	4,948	$	26,675	$	3,157
Gross realized gains		230		—		89		—
Gross realized losses		9		53		15		9

The scheduled maturities of securities available for sale and securities held to maturity at March 31, ~~2020~~2021 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Debt securities available for sale:
Due in one year or less	$	-	$	-	$	4,887	$	4,946
Due from one to five years		49,466		51,454		57,462		60,632
Due after five years through ten years		160,496		170,193		148,739		153,492
Due after ten years		216,588		223,198		541,443		534,419
Total available for sale securities	$	426,550	$	444,845	$	752,531	$	753,489
Debt securities held to maturity:
Due in one year or less	$	54,240	$	54,455	$	46,389	$	46,684
Due from one to five years		121,443		123,697		92,903		96,303
Due after five years through ten years		32,208		33,278		20,252		21,018
Due after ten years		138,361		143,141		96,590		100,324
Total held to maturity securities	$	346,252	$	354,571	$	256,134	$	264,329

Unrealized losses on investment securities for which an allowance for credit losses has not been recorded and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

	Less than 12 months				12 months or longer				Total				Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses
March 31, 2020
March 31, 2021
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—	$	9,941	$	59	$	—	$	—	$	9,941	$	59
Mortgage-backed securities:
Federal National Mortgage Association		5,502		217		—		—		5,502		217		224,499		4,432		13		—		224,512		4,432
Federal Home Loan Mortgage Corporation		—		—		—		—		—		—		209,482		5,760		—		—		209,482		5,760
Government National Mortgage Association		5,681		165		—		—		5,681		165		5,165		126		—		—		5,165		126
Collateralized mortgage obligations:
Federal National Mortgage Association		3,808		36		8		—		3,816		36		9,665		43		—		—		9,665		43
Federal Home Loan Mortgage Corporation		4,761		48		—		—		4,761		48		6,921		22		—		—		6,921		22
Total mortgage-backed securities		19,752		466		8		—		19,760		466		455,732		10,383		13		—		455,745		10,383
Total available for sale securities		19,752		466		8		—		19,760		466		465,673		10,442		13		—		465,686		10,442
Total temporarily impaired securities	$	19,752	$	466	$	8	$	-	$	19,760	$	466	$	465,673	$	10,442	$	13	$	—	$	465,686	$	10,442
December 31, 2019
December 31, 2020
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities:
Federal National Mortgage Association		104,634		1,277		7,196		103		111,830		1,380		18,155		44		—		—		18,155		44
Federal Home Loan Mortgage Corporation		10,347		11		9,409		161		19,756		172		10,932		24		—		—		10,932		24
Government National Mortgage Association		533		4		—		—		533		4		—		—		—		—		—		—
Collateralized mortgage obligations:
Federal National Mortgage Association		8,803		57		8		—		8,811		57		—		—		8		—		8		—
Federal Home Loan Mortgage Corporation		4,889		18		0		—		4,889		18		—		—		—		—		—		—
Total mortgage-backed securities		129,206		1,367		16,613		264		145,819		1,631		29,087		68		8		—		29,095		68
Total available for sale securities		129,206		1,367		16,613		264		145,819		1,631		29,087		68		8		—		29,095		68
Securities held to maturity:
State and political subdivisions		—		—		—		—		—		—
Mortgage-backed securities:
Federal National Mortgage Association		2,388		6		—		—		2,388		6
Federal Home Loan Mortgage Corporation		2,967		19		2,598		28		5,565		47
Government National Mortgage Association		11,155		61		5,625		67		16,780		128
Collateralized mortgage obligations:
Federal National Mortgage Association		9,120		40		13,486		216		22,606		256
Federal Home Loan Mortgage Corporation		15,127		30		7,988		73		23,115		103
Government National Mortgage Association		8,760		72		892		11		9,652		83
Total mortgage-backed securities		49,517		228		30,589		395		80,106		623
Total held to maturity securities		49,517		228		30,589		395		80,106		623
Total temporarily impaired securities	$	178,723	$	1,595	$	47,202	$	659	$	225,925	$	2,254	$	29,087	$	68	$	8	$	—	$	29,095	$	68

The total number of ~~security~~securities positions in the investment portfolio in an unrealized loss position at March 31, ~~2020~~2021 was ~~six~~62 compared to 918 at December 31, ~~2019.~~2020. At March 31, ~~2020,~~2021, the Company had ~~positions~~a position in ~~one~~1 investment security with a fair value of $8$13 thousand and a total unrealized loss of less than $11 thousand dollars that has been in a continuous unrealized loss position for more than 12 months. At March 31, ~~2020,~~2021, there were a total of ~~five~~61 securities positions in the Company’s investment portfolio with a fair value of ~~$19.8~~$465.7 million and a total unrealized loss of ~~$466 thousand~~$10.4 million that had been in a continuous unrealized loss position for less than 12 months. At December 31, ~~2019,~~2020, the Company had ~~positions~~a position in 341 investment ~~securities~~security with a fair value of ~~$47.2 million~~8 thousand dollars and a total unrealized loss of ~~$659~~less than 1 thousand dollars that had been in a continuous unrealized loss position for more than 12 months. At December 31, ~~2019,~~2020, there were a total of 577 securities positions in the Company’s investment portfolio with a fair value of ~~$178.7~~$29.1 million and a total unrealized loss of ~~$1.6 million~~$68 thousand that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Company’s portfolio fluctuates as market interest rates change.

As of March 31, 2021 and December 31, 2020, no0 allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities ~~are~~were impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

The Company’s HTM investment securities include debt securities that are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. In addition, the Company’s HTM investment securities include debt securities that are issued by state and local government agencies, or municipal bonds.

The Company monitors the credit quality of our municipal bonds through the use of a credit rating agency or by ratings that are derived by an internal scoring model. The scoring methodology for the internally derived ratings is based on a series of financial ratios for the municipality being reviewed as compared to typical industry figures. This information is used to determine the financial strengths and weaknesses of the municipality, which is indicated with a numeric rating. This number is then converted into a letter rating to better match the system used by the credit rating agencies. As of March 31, ~~2020, $180.0~~2021, $131.4 million of our municipal bonds were rated as an equivalent to Standard & Poor’s A/AA/AAA, with ~~$7.1~~$7.6 million internally rated to be the equivalent of Standard & Poor’s A/AA/AAA rating. Additionally, one municipal bond iswas rated below investment grade, with a ~~BB-~~BB+ Standard & Poor’s equivalent rating. The below investment grade bond ~~represents~~represented exposure of ~~$278~~$280 thousand, or ~~0.15%~~0.20% of the municipal bond portfolio and ishas been closely monitored for repayment. As of December 31, 2020, $135.7 million of our municipal bonds were rated as an equivalent to Standard & Poor’s A/AA/AAA, with $8.5 million internally rated to be the equivalent of Standard & Poor’s A/AA/AAA rating. Additionally, one municipal bond was rated below investment grade, with a BB+ Standard & Poor’s equivalent rating. The below investment grade bond represented exposure of $279 thousand, or 0.19% of the municipal bond portfolio and has been closely monitored for repayment.

As of March 31, 2021 and December 31, 2020, the Company had no0 past due or nonaccrual held to maturity investment securities.

The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands):

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net			Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
March 31, 2020
March 31, 2021
Commercial business	$	587,903	$	965		$	588,868		$	822,499	$	(5,563	)	$	816,936
Commercial mortgage		1,109,344		(1,968	)		1,107,376			1,279,317		(2,476	)		1,276,841
Residential real estate loans		567,714		12,086			579,800			588,002		13,607			601,609
Residential real estate lines		98,996		3,117			102,113			82,319		3,043			85,362
Consumer indirect		815,969		27,699			843,668			829,362		28,442			857,804
Other consumer		15,249		153			15,402			15,695		139			15,834
Total	$	3,195,175	$	42,052			3,237,227		$	3,617,194	$	37,192			3,654,386
Allowance for credit losses - loans							(43,356	)							(49,828	)
Total loans, net						$	3,193,871							$	3,604,558
December 31, 2019
December 31, 2020
Commercial business	$	571,222	$	818		$	572,040		$	798,409	$	(4,261	)	$	794,148
Commercial mortgage		1,108,315		(2,032	)		1,106,283			1,256,525		(2,624	)		1,253,901
Residential real estate loans		560,717		11,633			572,350			586,537		13,263			599,800
Residential real estate lines		101,048		3,070			104,118			86,708		3,097			89,805
Consumer indirect		822,179		27,873			850,052			812,816		27,605			840,421
Other consumer		15,984		160			16,144			16,913		150			17,063
Total	$	3,179,465	$	41,522			3,220,987		$	3,557,908	$	37,230			3,595,138
Allowance for credit losses - loans							(30,482	)							(52,420	)
Total loans, net						$	3,190,505							$	3,542,718

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled ~~$3.8~~$5.7 million and ~~$4.2~~$4.3 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act established the PPP, an expansion of the SBA’s 7(a) loan program and the EIDL, administered directly by the SBA. The Company had $262.1 million and $253.1 million of PPP loans (included in Commercial business above) as of March 31, 2021 and December 31, 2020, respectively. In addition, the CARES Act provides that a financial institution may elect to suspend (1) the application of GAAP for certain loan modifications related to COVID-19 that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Accordingly, the Company had $532.4 million of loans with modifications related to COVID-19 during 2020, with $89.1 million and $113.0 million still on deferral as of March 31, 2021 and December 31, 2020, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, AIR for loans totaled ~~$9.4~~$13.7 million and ~~$9.1~~$13.6 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans		Nonaccrual with no allowance		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans		Nonaccrual with no allowance
March 31, 2020
March 31, 2021
Commercial business	$	234	$	55	$	—	$	289	$	5,507	$	582,107	$	587,903	$	4,531	$	75	$	—	$	—	$	75	$	1,742	$	820,682	$	822,499	$	1,238
Commercial mortgage		8,476		—		—		8,476		2,984		1,097,884		1,109,344		824		24		—		—		24		3,402		1,275,891		1,279,317		2,867
Residential real estate loans		2,997		1		—		2,998		1,971		562,745		567,714		1,971		168		20		—		188		2,519		585,295		588,002		2,519
Residential real estate lines		233		3		—		236		143		98,617		98,996		143		27		25		—		52		256		82,011		82,319		256
Consumer indirect		7,127		684		—		7,811		1,777		806,381		815,969		1,777		1,427		253		—		1,680		1,482		826,200		829,362		1,482
Other consumer		98		20		2		120		—		15,129		15,249		-		98		53		284		435		3		15,257		15,695		3
Total loans, gross	$	19,165	$	763	$	2	$	19,930	$	12,382	$	3,162,863	$	3,195,175	$	9,246	$	1,819	$	351	$	284	$	2,454	$	9,404	$	3,605,336	$	3,617,194	$	8,365
December 31, 2019
December 31, 2020
Commercial business	$	361	$	—	$	—	$	361	$	1,177	$	569,684	$	571,222			$	264	$	87	$	—	$	351	$	1,975	$	796,083	$	798,409	$	1,502
Commercial mortgage		531		—		—		531		3,146		1,104,638		1,108,315				822		26		—		848		2,906		1,252,771		1,256,525		2,709
Residential real estate loans		929		114		—		1,043		2,484		557,190		560,717				984		60		—		1,044		2,587		582,906		586,537		2,587
Residential real estate lines		231		37		—		268		102		100,678		101,048				40		15		—		55		323		86,330		86,708		323
Consumer indirect		3,729		1,019		—		4,748		1,725		815,706		822,179				3,966		1,348		—		5,314		1,495		806,007		812,816		1,495
Other consumer		116		8		6		130		—		15,854		15,984				133		18		231		382		—		16,531		16,913		—
Total loans, gross	$	5,897	$	1,178	$	6	$	7,081	$	8,634	$	3,163,750	$	3,179,465			$	6,209	$	1,554	$	231	$	7,994	$	9,286	$	3,540,628	$	3,557,908	$	8,616

There were no0 loans past due greater than 90 days and still accruing interest as of March 31, ~~2020~~2021 and December 31, ~~2019.~~2020. There were $2$284 thousand and $6$231 thousand in consumer overdrafts which were past due greater than 90 days as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

The Company recognized no0 interest income on nonaccrual loans during the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

~~The following presents, by loan class, information related to~~There were 0 loans modified inas a TDR during the three months ended March 31, ~~2020~~2021 and ~~2019:~~

The loan restructured during the three months ended March 31, 2020 was on nonaccrual status at the end of the period, with the modifications primarily related to collateral concessions. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR classifications did not have a material impact on the Company’s determination of the allowance for credit losses – loans because the modified loans were evaluated for a specific reserve both before and after restructuring.

2020. There were no0 loans modified as a TDR within the previous 12 months that defaulted during the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

Management has determined that specific commercial loans on nonaccrual status, ~~and~~ all loans that have had their terms restructured in a troubled debt restructuring and other loans deemed appropriate by management where repayment is expected to be provided substantially through the operation or sale of the collateral to be collateral dependent loans. Collateral dependent loans at March 31, 2021 and December 31, 2020 included certain criticized COVID-19 bridge loans not otherwise classified as nonaccrual. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of March 31, 2021 and December 31, 2020 (in thousands):

	Collateral type						Collateral type
	Business assets		Real property		Total		Business assets		Real property		Total		Specific Reserve
March 31, 2020
March 31, 2021
Commercial business	$	2,974	$	4,571	$	7,545	$	804	$	1,148	$	1,952	$	1,346
Commercial mortgage		—		5,418		5,418		—		60,156		60,156		12,157
Total	$	2,974	$	9,989	$	12,963	$	804	$	61,304	$	62,108	$	13,503

December 31, 2020
Commercial business							$	2,379	$	—	$	2,379	$	1,383
Commercial mortgage								—		36,625		36,625		8,187
Total							$	2,379	$	36,625	$	39,004	$	9,570

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

The following ~~table sets~~tables set forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):

	Term Loans Amortized Cost Basis by Origination Year																		Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2020
March 31, 2021
Commercial Business
Uncriticized	$	44,451	$	120,112	$	99,167	$	67,821	$	15,277	$	26,344	$	195,088	$	—	$	568,260	$	34,725	$	282,996	$	106,625	$	65,350	$	23,823	$	24,702	$	268,143	$	0	$	806,364
Special mention		—		2,706		231		1,688		218		181		4,284		—		9,308		0		0		1		42		566		1,002		2,795		0		4,406
Substandard		—		194		1,173		867		453		4,200		4,407		—		11,294		0		247		225		1,119		153		234		4,188		0		6,166
Doubtful		—		—		—		—		—		—		6		—		6		0		0		0		0		0		0		0		0		0
Total	$	44,451	$	123,012	$	100,571	$	70,376	$	15,948	$	30,725	$	203,785	$	—	$	588,868	$	34,725	$	283,243	$	106,851	$	66,511	$	24,542	$	25,938	$	275,126	$	0	$	816,936
Commercial Mortgage
Uncriticized	$	46,283	$	282,360	$	214,637	$	211,456	$	109,525	$	232,204	$	529	$	—	$	1,096,994	$	47,489	$	332,420	$	220,441	$	146,250	$	159,788	$	208,781	$	895	$	0	$	1,116,064
Special mention		—		—		35		41		1,013		250		—		—		1,339		500		14,067		39,480		19,511		27,305		40,518		0		0		141,381
Substandard		—		2,446		229		1,625		157		4,387		199		—		9,043		0		331		5,350		1,881		1,761		9,875		198		0		19,396
Doubtful		—		—		—		—		—		—		—		—		—		0		0		0		0		0		0		0		0		0
Total	$	46,283	$	284,806	$	214,901	$	213,122	$	110,695	$	236,841	$	728	$	—	$	1,107,376	$	47,989	$	346,818	$	265,271	$	167,642	$	188,854	$	259,174	$	1,093	$	0	$	1,276,841

	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2020
Commercial Business
Uncriticized	$	350,992	$	112,469	$	82,029	$	31,990	$	8,195	$	16,600	$	179,770	$	0	$	782,045
Special mention		0		360		21		709		41		1,025		2,995		0		5,151
Substandard		193		211		1,183		464		202		309		4,390		0		6,952
Doubtful		0		0		0		0		0		0		0		0		0
Total	$	351,185	$	113,040	$	83,233	$	33,163	$	8,438	$	17,934	$	187,155	$	0	$	794,148
Commercial Mortgage
Uncriticized	$	310,364	$	227,406	$	163,839	$	161,771	$	74,915	$	154,399	$	731	$	0	$	1,093,425
Special mention		14,299		42,305		19,505		27,530		12,256		28,744		43		0		144,682
Substandard		189		2,521		1,890		1,648		3		9,344		199		0		15,794
Doubtful		0		0		0		0		0		0		0		0		0
Total	$	324,852	$	272,232	$	185,234	$	190,949	$	87,174	$	192,487	$	973	$	0	$	1,253,901

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following ~~table sets~~tables set forth the Company’s retail loan portfolio, categorized by ~~payment~~performance status, as of the dates indicated (in thousands):

	Term Loans Amortized Cost Basis by Origination Year																		Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2020
March 31, 2021
Residential Real Estate Loans
Performing	$	28,479	$	112,239	$	105,772	$	83,138	$	79,834	$	168,367	$	—	$	—	$	577,829	$	32,920	$	136,773	$	97,640	$	80,962	$	62,906	$	187,889	$	0	$	0	$	599,090
Nonperforming		—		109		584		85		178		1,015		—		—		1,971		0		0		198		661		754		906		0		0		2,519
Total	$	28,479	$	112,348	$	106,356	$	83,223	$	80,012	$	169,382	$	—	$	—	$	579,800	$	32,920	$	136,773	$	97,838	$	81,623	$	63,660	$	188,795	$	0	$	0	$	601,609
Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	91,044	$	10,926	$	101,970	$	0	$	0	$	0	$	0	$	0	$	0	$	75,606	$	9,500	$	85,106
Nonperforming		—		—		—		—		—		—		46		97		143		0		0		0		0		0		0		64		192		256
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	91,090	$	11,023	$	102,113	$	0	$	0	$	0	$	0	$	0	$	0	$	75,670	$	9,692	$	85,362
Consumer Indirect
Performing	$	75,304	$	255,499	$	227,717	$	165,416	$	79,736	$	38,219	$	—	$	—	$	841,891	$	105,985	$	278,315	$	182,163	$	146,363	$	94,067	$	49,429	$	0	$	0	$	856,322
Nonperforming		25		441		576		366		289		80		—		—		1,777		0		394		421		387		195		85		0		0		1,482
Total	$	75,329	$	255,940	$	228,293	$	165,782	$	80,025	$	38,299	$	—	$	—	$	843,668	$	105,985	$	278,709	$	182,584	$	146,750	$	94,262	$	49,514	$	0	$	0	$	857,804
Other Consumer
Performing	$	1,646	$	4,889	$	2,868	$	1,672	$	730	$	690	$	2,907	$	—	$	15,402	$	1,311	$	5,419	$	2,782	$	1,439	$	688	$	962	$	3,230	$	0	$	15,831
Nonperforming		—		—		—		—		—		—		—		—		—		0		0		3		0		0		0		0		0		3
Total	$	1,646	$	4,889	$	2,868	$	1,672	$	730	$	690	$	2,907	$	—	$	15,402	$	1,311	$	5,419	$	2,785	$	1,439	$	688	$	962	$	3,230	$	0	$	15,834

	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2020
Residential Real Estate Loans
Performing	$	137,926	$	103,923	$	87,153	$	66,446	$	67,473	$	134,292	$	0	$	0	$	597,213
Nonperforming		0		199		765		665		233		725		0		0		2,587
Total	$	137,926	$	104,122	$	87,918	$	67,111	$	67,706	$	135,017	$	0	$	0	$	599,800
Residential Real Estate Lines
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	79,257	$	10,225	$	89,482
Nonperforming		0		0		0		0		0		0		65		258		323
Total	$	0	$	0	$	0	$	0	$	0	$	0	$	79,322	$	10,483	$	89,805
Consumer Indirect
Performing	$	295,216	$	202,187	$	166,773	$	111,008	$	47,793	$	15,949	$	0	$	0	$	838,926
Nonperforming		70		652		319		287		132		35		0		0		1,495
Total	$	295,286	$	202,839	$	167,092	$	111,295	$	47,925	$	15,984	$	0	$	0	$	840,421
Other Consumer
Performing	$	6,774	$	3,177	$	1,765	$	907	$	369	$	508	$	3,563	$	0	$	17,063
Nonperforming		0		0		0		0		0		0		0		0		0
Total	$	6,774	$	3,177	$	1,765	$	907	$	369	$	508	$	3,563	$	0	$	17,063

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The Company adopted ASU 2016-13 using the modified retrospective approach. Results for the periods beginning after January 1, 2020 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net reduction of retained earnings of $8.7 million upon adoption. The transition adjustment includes an increase in credit-related reserves of $9.6 million, $14 thousand, and $2.1 million for loans, held to maturity investment securities and unfunded commitments, respectively, net of the corresponding increase in deferred tax assets of $3.0 million.

The following table sets forth the changes in the allowance for credit losses - loans for the three-month periods ended as of the dates indicated (in thousands):

																					Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
March 31, 2021
Allowance for credit losses - loans:
Beginning balance																					$	13,580		$	21,763		$	3,924		$	674		$	12,165		$	314		$	52,420
Charge-offs																						(86	)		(203	)		(11	)		(70	)		(2,413	)		(81	)		(2,864	)
Recoveries																						238			0			5			0			1,670			64			1,977
Provision (benefit)																						(1,062	)		1,112			(809	)		(122	)		(865	)		41			(1,705	)
Ending balance																					$	12,670		$	22,672		$	3,109		$	482		$	10,557		$	338		$	49,828
	Commercial Business			Commercial Mortgage		Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
March 31, 2020
Allowance for credit losses - loan:
Allowance for credit losses - loans:
Beginning balance, prior to adoption of ASC 326	$	11,358		$	5,681	$	1,059		$	118		$	11,852		$	414		$	30,482		$	11,358		$	5,681		$	1,059		$	118		$	11,852		$	414		$	30,482
Impact of adopting ASC 326		(246	)		7,310		3,290			607			(1,234	)		(133	)		9,594			(246	)		7,310			3,290			607			(1,234	)		(133	)		9,594
Beginning balance, after adoption of ASC 326		11,112			12,991		4,349			725			10,618			281			40,076			11,112			12,991			4,349			725			10,618			281			40,076
Charge-offs		(8,241	)		—		(98	)		—			(3,424	)		(269	)		(12,032	)		(8,241	)		0			(98	)		0			(3,424	)		(269	)		(12,032	)
Recoveries		58			—		10			3			1,668			150			1,889			58			0			10			3			1,668			150			1,889
Provision (credit)		7,294			2,163		1,909			171			1,783			103			13,423
Provision																						7,294			2,163			1,909			171			1,783			103			13,423
Ending balance	$	10,223		$	15,154	$	6,170		$	899		$	10,645		$	265		$	43,356		$	10,223		$	15,154		$	6,170		$	899		$	10,645		$	265		$	43,356

March 31, 2019
Allowance for loan losses:
Beginning balance	$	14,312		$	5,219	$	1,112		$	210		$	12,572		$	489		$	33,914
Charge-offs		(130	)		—		(31	)		—			(2,982	)		(309	)		(3,452	)
Recoveries		103			17		6			2			1,424			120			1,672
Provision (credit)		(2,118	)		1,080		178			(39	)		2,011			81			1,193
Ending balance	$	12,167		$	6,316	$	1,265		$	173		$	13,025		$	381		$	33,327
Evaluated for impairment:
Individually	$	181		$	2	$	—		$	—		$	—		$	—		$	183
Collectively	$	11,986		$	6,314	$	1,265		$	173		$	13,025		$	381		$	33,144
Loans:
Ending balance	$	552,834		$	995,183	$	525,036		$	105,592		$	872,410		$	15,941		$	3,066,996
Evaluated for impairment:
Individually	$	725		$	1,352	$	—		$	—		$	—		$	—		$	2,077
Collectively	$	552,109		$	993,831	$	525,036		$	105,592		$	872,410		$	15,941		$	3,064,919

Commercial business loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions, including the impact of the COVID-19 pandemic on small to mid-sized business in our market area, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events, including the impact of the COVID-19 pandemic on the ability of the tenants to pay rent at these properties, or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company’s commercial real estate loans and on the value of such properties.

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines (comprised of home equity lines) are generally made based on the borrower’s ability to make repayment from his or her employment and other income but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, including the impact of the COVID-19 pandemic on the employment income of these borrowers, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy, including the heightened risk that such circumstances may arise as a result of the COVID-19 pandemic. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

ASC 842, Leases (“ASC 842”), establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. The Company is obligated under a number of non-cancellable operating lease agreements for land, buildings and equipment with terms, including renewal options reasonably certain to be exercised, extending through 2047. ~~One~~NaN building lease is subleased for terms extending through 2021.

The following table represents the consolidated statements of financial condition classification of the Company’s right of use assets and lease liabilities:

		March 31,			December 31,				March 31,			December 31,
	Balance Sheet Location	2020			2019			Balance Sheet Location	2021			2020
Operating Lease Right of Use Assets:
Gross carrying amount	Other assets	$	23,555		$	23,224		Other assets	$	24,557		$	23,697
Accumulated amortization	Other assets		(2,325	)		(1,861	)	Other assets		(4,241	)		(3,741	)
Net book value		$	21,230		$	21,363			$	20,316		$	19,956

Operating Lease Liabilities:
Right of use lease obligations	Other liabilities	$	22,697		$	22,800		Other liabilities	$	21,908		$	21,507

The weighted average remaining lease term for operating leases was ~~21.5~~21.1 years at March 31, ~~2020~~2021 and the weighted-average discount rate used in the measurement of operating lease liabilities was ~~3.77%~~3.78%. The Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term for the discount rate.

	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Lease costs:
Operating lease costs	$	677		$	693		$	680		$	677
Variable lease costs ⁽¹⁾		101			96			98			101
Sublease income		(11	)		(12	)		(11	)		(11	)
Net lease costs	$	767		$	777		$	767		$	767

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	648		$	688		$	661		$	648
Initial recognition of operating lease right of use assets	$	—		$	23,275
Initial recognition of operating lease liabilities	$	—		$	23,985
Right of use assets obtained in exchange for new operating lease liabilities	$	334		$	325		$	864		$	334

Future minimum payments under non-cancellable operating leases with initial or remaining terms of one year or more, are as follows at March 31, ~~2020~~2021 (in thousands):

Twelve months ended March 31,
2021	$	1,950
2022		2,442		$	2,372
2023		1,990			1,979
2024		1,610			1,514
2025		1,291			1,308
2026					1,233
Thereafter		25,982			24,858
Total future minimum operating lease payments		35,265			33,264
Amounts representing interest		(12,568	)		(11,356	)
Present value of net future minimum operating lease payments	$	22,697		$	21,908

The carrying amount of goodwill totaled $66.7 million and $66.1 million as of both March 31, ~~2020~~2021 and December 31, ~~2019.~~2020. The Company performs a goodwill impairment test on an annual basis as of October 1st or more frequently if events and circumstances warrant.

⁽¹⁾All Other includes the SDN, Courier Capital and HNP Capital reporting units

Goodwill ~~is not amortized but, instead, is subject~~and other intangible assets added during the period relates to ~~impairment tests~~the acquisition of assets of Landmark Group, which was completed on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Based on the recent decline in the capital markets and overall economic conditions as a result of the COVID-19 pandemic accompanied by a decline in the Company’s stock price, a goodwill impairment test was performed in the first quarter of 2020. Based on its qualitative assessment, the Company concluded that it was not more likely than not that goodwill was impaired as of March 31, 2020. Therefore, no quantitative assessment was deemed necessary as of March 31, 2020.February 1, 2021. See Note 2 – Business Combinations for additional information.

The Company has other intangible assets that are amortized, consisting of core deposit intangibles and other intangibles (primarily related to customer relationships). Gross carrying amount, accumulated amortization and net book value, were as follows (in thousands):

	March 31,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
Other intangibles assets:
Gross carrying amount	$	15,925		$	15,925		$	16,324		$	15,925
Accumulated amortization		(7,358	)		(7,064	)		(8,469	)		(8,198	)
Net book value	$	8,567		$	8,861		$	7,855		$	7,727

Amortization expense for total other intangible assets was ~~$294~~$271 thousand and ~~$323~~$294 thousand for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. As of March 31, ~~2020,~~2021, the estimated amortization expense of other intangible assets for the remainder of ~~2020~~2021 and each of the next five years is as follows (in thousands):

2020 (remainder of year)	$	840
2021		1,014
2021 (remainder of year)			$	779
2022		923		960
2023		852		887
2024		783		816
2025		714		745
2026				675

A summary of other assets as of the dates indicated are as follows (in thousands):

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company ~~primarily~~ uses interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the first three months of ~~2020~~2021 and in ~~2019,~~2020, such derivatives were used to hedge the variable cash flows associated with short-term borrowings. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a period of approximately 60 months. As of March 31, 2021, the Company had 1 outstanding forward starting interest rate derivative with a notional value of $50.0 million that was designated as a cash flow hedge of interest rate risk. The derivative becomes effective in April 2022.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company’s cash flow hedge derivatives did not have any hedge ineffectiveness recognized in earnings during the three months ended March 31, 2020 and 2019. During the next twelve months, the Company estimates that ~~$576 thousand~~$0 will be reclassified ~~as an increase to~~into interest expense.

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

The Company extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements when the Company intends to sell the related loan, once originated, as well as closed residential mortgage loans held for sale, the Company enters into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value.

The table below presents the notional amounts, respective fair values of the Company’s derivative financial instruments, as well as their classification on the balance sheet as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

					Asset derivatives					Liability derivatives									Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value				Gross notional amount				Balance	Fair value				Balance	Fair value
	Mar. 31, 2020		Dec. 31, 2019		sheet line item	Mar. 31, 2020		Dec. 31, 2019		sheet line item	Mar. 31, 2020		Dec. 31, 2019		Mar. 31, 2021		Dec. 31, 2020		sheet line item	Mar. 31, 2021		Dec. 31, 2020		sheet line item	Mar. 31, 2021		Dec. 31, 2020
Derivatives designated as hedging instruments
Cash flow hedges	$	100,000	$	100,000	Other assets	$	2	$	—	Other liabilities	$	—	$	—	$	50,000	$	50,000	Other assets	$	1,677	$	—	Other liabilities	$	—	$	311
Total derivatives	$	100,000	$	100,000		$	2	$	—		$	—	$	—	$	50,000	$	50,000		$	1,677	$	—		$	—	$	311
Derivatives not designated as hedging instruments
Cash flow hedges															$	—	$	100,000	Other assets	$	—	$	—	Other liabilities	$	—	$	—
Interest rate swaps ⁽¹⁾	$	351,033	$	272,962	Other assets	$	19,921	$	6,419	Other liabilities	$	20,431	$	6,720		706,115		631,907	Other assets		16,176		19,626	Other liabilities		15,580		19,837
Credit contracts		66,767		68,324	Other assets		32		13	Other liabilities		42		18		115,833		113,434	Other assets		12		23	Other liabilities		39		86
Mortgage banking		20,545		11,859	Other assets		259		119	Other liabilities		120		7		28,025		28,225	Other assets		526		471	Other liabilities		—		1
Total derivatives	$	438,345	$	353,145		$	20,212	$	6,551		$	20,593	$	6,745	$	849,973	$	873,566		$	16,714	$	20,120		$	15,619	$	19,924

The table below presents the effect of the Company’s derivative financial instruments on the income statement for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

		Gain (loss) recognized in income						Gain (loss) recognized in income
	Line item of gain (loss)	Three months ended March 31,					Line item of gain (loss)	Three months ended March 31,
Undesignated derivatives	recognized in income	2020			2019		recognized in income	2021		2020
Cash flow hedges							Income from derivative instruments, net	$	—	$	—
Interest rate swaps	Income from derivative instruments, net	$	724		$	101	Income from derivative instruments, net		1,772		724
Credit contracts	Income from derivative instruments, net		(5	)		14	Income from derivative instruments, net		48		(5	)
Mortgage banking	Income from derivative instruments, net		27			53	Income from derivative instruments, net		55		27
Total undesignated		$	746		$	168		$	1,875	$	746

The changes in shares of common stock were as follows for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

	Outstanding			Treasury			Issued		Outstanding			Treasury			Issued
2021
Shares at December 31, 2020										16,041,926			57,630			16,099,556
Shares issued for Landmark Group acquisition										12,831			(12,831	)		—
Restricted stock units released										18,819			(18,819	)		—
Treasury stock purchases										(244,677	)		244,677			—
Shares at March 31, 2021										15,828,899			270,657			16,099,556
2020
Shares at December 31, 2019		16,002,899			96,657			16,099,556		16,002,899			96,657			16,099,556
Restricted stock units released		22,921			(22,921	)		—		22,921			(22,921	)		—
Treasury stock purchases		(6,436	)		6,436			—		(6,436	)		6,436			—
Shares at March 31, 2020		16,019,384			80,172			16,099,556		16,019,384			80,172			16,099,556
2019
Shares at December 31, 2018		15,928,598			127,580			16,056,178
Restricted stock units released		18,580			(18,580	)		—
Treasury stock purchases		(6,368	)		6,368			—
Shares at March 31, 2019		15,940,810			115,368			16,056,178

In November 2020, the Company’s Board of Directors authorized a share repurchase program for up to 801,879 shares of common stock. Repurchased shares are recorded in treasury stock, at cost, which includes any applicable transaction costs. 238,439 shares were repurchased at an average price of $24.30 during the three months ended March 31, 2021. NaN shares were repurchased under this program during the year ended December 31, 2020. As of March 31, 2021, the remaining amount of shares authorized for repurchase under the repurchase program was 563,440.

The following tables present the components of other comprehensive income (loss) for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

	Pre-tax Amount			Tax Effect			Net-of-tax Amount			Pre-tax Amount			Tax Effect			Net-of-tax Amount
March 31, 2020
March 31, 2021
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	16,451		$	4,215		$	12,236		$	(19,362	)	$	(4,961	)	$	(14,401	)
Reclassification adjustment for net gains included in net income ⁽¹⁾		(175	)		(45	)		(130	)		(1	)		—			(1	)
Total securities available for sale and transferred securities		16,276			4,170			12,106			(19,363	)		(4,961	)		(14,402	)
Hedging derivative instruments:
Change in unrealized gain/loss during the period		123			32			91			2,103			539			1,564
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(9	)		(2	)		(7	)		(1	)		—			(1	)
Amortization of net actuarial loss included in income		323			82			241			186			47			139
Total pension and post-retirement obligations		314			80			234			185			47			138
Other comprehensive income	$	16,713		$	4,282		$	12,431
Other comprehensive loss										$	(17,075	)	$	(4,375	)	$	(12,700	)

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
March 31, 2019
March 31, 2020
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	7,184		$	1,811		$	5,373		$	16,451		$	4,215		$	12,236
Reclassification adjustment for net gains included in net income ⁽¹⁾		174			44			130			(175	)		(45	)		(130	)
Total securities available for sale and transferred securities		7,358			1,855			5,503			16,276			4,170			12,106
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(340	)		(86	)		(254	)		123			32			91
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(16	)		(4	)		(12	)		(9	)		(2	)		(7	)
Amortization of net actuarial loss included in income		366			93			273			323			82			241
Total pension and post-retirement obligations		350			89			261			314			80			234
Other comprehensive income	$	7,368		$	1,858		$	5,510		$	16,713		$	4,282		$	12,431

Activity in accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 was as follows (in thousands):

	Hedging Derivative Instruments			Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Income (Loss)			Hedging Derivative Instruments			Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Income (Loss)
March 31, 2021
Balance at beginning of period													$	(316	)	$	14,743		$	(12,299	)	$	2,128
Other comprehensive income before reclassifications														1,564			(14,401	)		—			(12,837	)
Amounts reclassified from accumulated other comprehensive income (loss)														—			(1	)		138			137
Net current period other comprehensive income (loss)														1,564			(14,402	)		138			(12,700	)
Balance at end of period													$	1,248		$	341		$	(12,161	)	$	(10,572	)
March 31, 2020
Balance at beginning of period	$	(518	)	$	873		$	(14,868	)	$	(14,513	)	$	(518	)	$	873		$	(14,868	)	$	(14,513	)
Other comprehensive income before reclassifications		91			12,236			—			12,327			91			12,236			—			12,327
Amounts reclassified from accumulated other comprehensive income (loss)		—			(130	)		234			104			—			(130	)		234			104
Net current period other comprehensive income		91			12,106			234			12,431
Balance at end of period	$	(427	)	$	12,979		$	(14,634	)	$	(2,082	)
March 31, 2019
Balance at beginning of period	$	(276	)	$	(7,769	)	$	(13,236	)	$	(21,281	)
Reclassification of income tax effects to retained earnings	$	—		$	(681	)	$	(2,102	)		(2,783	)
Other comprehensive income (loss) before reclassifications		(254	)		5,373			—			5,119
Amounts reclassified from accumulated other comprehensive income		—			130			261			391
Net current period other comprehensive income (loss)		(254	)		5,503			261			5,510			91			12,106			234			12,431
Balance at end of period	$	(530	)	$	(2,947	)	$	(15,077	)	$	(18,554	)	$	(427	)	$	12,979		$	(14,634	)	$	(2,082	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

Details About Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Consolidated Statement of Income	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Consolidated Statement of Income
	Three months ended							Three months ended
	March 31,							March 31,
	2020			2019				2021			2020
Realized (loss) gain on sale of investment securities	$	221		$	(53	)	Net (loss) gain on investment securities
Realized gain on sale of investment securities								$	74		$	221		Net gain on investment securities
Amortization of unrealized holding losses on investment securities transferred from available for sale to held to maturity		(46	)		(121	)	Interest income		(73	)		(46	)	Interest income
		175			(174	)	Total before tax		1			175		Total before tax
		(45	)		44		Income tax expense		—			(45	)	Income tax expense
		130			(130	)	Net of tax		1			130		Net of tax
Amortization of pension and post-retirement items:
Prior service credit ⁽¹⁾		9			16		Salaries and employee benefits		1			9		Salaries and employee benefits
Net actuarial losses ⁽¹⁾		(323	)		(366	)	Salaries and employee benefits		(186	)		(323	)	Salaries and employee benefits
		(314	)		(350	)	Total before tax		(185	)		(314	)	Total before tax
		80			89		Income tax expense		47			80		Income tax benefit
		(234	)		(261	)	Net of tax		(138	)		(234	)	Net of tax
Total reclassified for the period	$	(104	)	$	(391	)		$	(137	)	$	(104	)

The Company maintains certain share-based compensation plans, approved by the Company’s shareholders, that are administered by the Management Development and Compensation Committee (the “MD&C Committee”) of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the long-term growth and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company’s success.

The MD&C Committee approved the grant of restricted stock units (“RSUs”) and performance share units (“PSUs”) shown in the table below to certain members of management during the three months ended March 31, ~~2020.~~2021.

Number of

Underlying

Weighted

Average

Per Share

Grant Date

Fair Value

Number of

Underlying

Weighted

Average

Per Share

Grant Date

Fair Value

RSUs

57,174

25.70

58,924

27.46

PSUs

23,170

25.70

22,178

27.58

The grant-date fair value for the RSUs granted during the three months ended March 31, ~~2020~~2021 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

~~Fifty~~NaN percent of the PSUs that ultimately vest is contingent on achieving specified return on average equity (“ROAE”) targets relative to the SNL Small Cap Bank & Thrift Index, a market index the MD&C Committee has selected as a peer group for this purpose. These shares will be earned based on the Company’s achievement of a relative ROAE performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrift Index over a three-year performance period ended December 31, ~~2022.~~2023. The shares earned based on the achievement of the ROAE performance requirement, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company. The remaining ~~fifty~~50 percent of the PSUs that ultimately vest is contingent upon achievement of an average return on average assets (“ROAA”) performance requirement over a three-year performance period ended December 31, ~~2022.~~2023. The shares earned based on the achievement of the ROAA performance requirement, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company.

The grant-date fair values for both the ROAE and the ROAA portions of PSUs granted during the three months ended March 31, ~~2020~~2021 are equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

The Company previously granted restricted stock awards to certain members of management and non-employee directors. There were no0 restricted stock awards granted during the ~~quarter~~three months ended March 31, ~~2020.~~2021. The following is a summary of restricted stock awards and restricted stock units activity for the three months ended March 31, ~~2020:~~2021:

	Number of Shares			Weighted Average Market Price at Grant Date		Number of Shares			Weighted Average Market Price at Grant Date
Outstanding at beginning of year		151,808		$	27.80		168,513		$	25.65
Granted		80,344			25.70		81,102			27.50
Vested		(22,921	)		32.31		(18,819	)		28.38
Forfeited		(15,566	)		29.91		(18,487	)		26.67
Outstanding at end of period		193,665		$	26.22		212,309		$	26.03

At March 31, ~~2020,~~2021, there was ~~$3.5~~$3.8 million of unrecognized compensation expense related to unvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted average period of ~~2.4~~2.40 years.

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during the first three months of 2020 or 2019. There was no unrecognized compensation expense related to unvested stock options as of March 31, 2020. There was no stock option activity for the three months ended March 31, 2020.

The Company amortizes the expense related to share-based compensation awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income, is as follows (in thousands):

	Three months ended March 31,				Three months ended March 31,
	2020		2019		2021		2020
Salaries and employee benefits	$	304	$	151	$	188	$	304
Other noninterest expense		28		31		28		28
Total share-based compensation expense	$	332	$	182	$	216	$	332

The components of the Company’s net periodic benefit expense for its pension and post-retirement obligations were as follows (in thousands):

	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Service cost	$	923		$	836		$	1,049		$	923
Interest cost on projected benefit obligation		635			598			551			635
Expected return on plan assets		(1,284	)		(1,321	)		(1,306	)		(1,284	)
Amortization of unrecognized prior service credit		(9	)		(18	)		(1	)		(9	)
Amortization of unrecognized net actuarial loss		323			188			186			323
Net periodic benefit expense	$	588		$	283		$	479		$	588

The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements of income. The Company’s funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no0 minimum required contribution for the ~~2020~~2021 fiscal year.

The Company has financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk extending beyond amounts recognized in the financial statements.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved with extending loans to customers. The Company uses the same credit underwriting policies in making commitments and conditional obligations as for on-balance sheet instruments.

March 31,

2020

December 31,

2019

March 31,

2021

December 31,

2020

Commitments to extend credit

863,534

820,282

993,324

1,012,810

Standby letters of credit

20,416

21,911

22,970

22,393

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses which may require payment of a fee. Commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the allowance for credit losses for unfunded commitments totaled ~~$2.6~~$2.9 million and ~~$0,~~$3.1 million, respectively, and was included in other liabilities on the Company's consolidated statements of financial condition. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, credit loss (credit) expense for unfunded commitments was ~~$493~~$(276) thousand and ~~$0,~~$1.0 million, respectively.

In the ordinary course of business, there are various threatened and pending legal proceedings against the Company. Management believes that the aggregate liability, if any, arising from such litigation, except for the matter described below, would not have a material adverse effect on the Company’s consolidated financial statements.

~~(13.)FAIR VALUE MEASUREMENTS~~As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 15, 2021 and as disclosed in Part II, Item 1 of this Quarterly Report on Form 10-Q, we are party to an action filed against us on May 16, 2017 by Matthew L. Chipego, Charlene Mowry, Constance C. Churchill and Joseph W. Ewing in the Court of Common Pleas in Philadelphia, Pennsylvania. Plaintiffs seek class certification to represent classes of consumers in New York and Pennsylvania along with statutory damages, interest and declaratory relief. The plaintiffs seek to represent a putative class of consumers who are alleged to have obtained direct or indirect financing from us for the purchase of vehicles that we later repossessed. The plaintiffs specifically claim that the notices the Bank sent to defaulting consumers after their vehicles were repossessed did not comply with the relevant portions of the Uniform Commercial Code in New York and Pennsylvania. We dispute and believe we have meritorious defenses against these claims and plan to vigorously defend ourselves.

In February 2020, we agreed to engage in mediation with the plaintiffs and mediation is expected to commence during May 2021. On October 19, 2020, the Court granted plaintiffs’ motion for judgment on the pleadings dismissing our affirmative defense against one named New York plaintiff that his claim was time-barred under New York law, applying a six-year statute of limitations rather than the three years limitation period we had argued. The issue of class certification has been briefed and the class certification hearing date has been scheduled for June 14, 2021.

If we settle these claims or the action is not resolved in our favor, we may suffer reputational damage and incur legal costs, settlements or judgments that exceed the amounts covered by our existing insurance policies. We can provide no assurances that our insurer will insure the legal costs, settlements or judgments we incur in excess of our deductible. If we are unsuccessful in defending ourselves from these claims or if our insurer does not insure us against legal costs we incur in excess of our deductible, the result may materially adversely affect our business, results of operations and financial condition.

Determination of Fair Value – Assets Measured at Fair Value on a Recurring and Nonrecurring Basis

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:

~~Level 1~~- ~~Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability~~34 -

Notes to ~~access at the measurement date.~~Consolidated Financial Statements (Unaudited)

Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities available for sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Derivative instruments: The fair value of derivative instruments is determined using quoted secondary market prices for similar financial instruments and are classified as Level 2 in the fair value hierarchy.

Loans held for sale: The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments. Loans held for sale are classified as Level 2 in the fair value hierarchy.

Collateral dependent loans: Fair value of collateral dependent loans with specific allocations of the allowance for credit losses – loans is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised and reported values may be 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 client and the client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Long-lived assets held for sale: The fair value of the long-lived assets held for sale was based on estimated market prices from independently prepared current appraisals and are classified as Level 2 in the fair value hierarchy.

Loan servicing rights: Loan servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that we believe market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the fair value measurement of the Company’s loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other real estate owned (foreclosed assets): Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. 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 client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Commitments to extend credit and letters of credit: Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments is not material.

The following tables present for each of the fair-value hierarchy levels the Company’s assets that are measured at fair value on a recurring and ~~non-recurring~~nonrecurring basis as of the dates indicated (in thousands).

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
March 31, 2020
March 31, 2021
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	10,079		$	—	$	10,079		$	—	$	16,533		$	—	$	16,533
Mortgage-backed securities		—		434,766			—		434,766			—		736,956			—		736,956
Other assets:
Hedging derivative instruments		—		2			—		2			—		1,677			—		1,677
Fair value adjusted through comprehensive income	$	—	$	444,847		$	—	$	444,847		$	—	$	755,166		$	—	$	755,166
Other assets:
Derivative instruments - interest rate products	$	—	$	19,921		$	—	$	19,921
Derivative instruments - interest rate swaps												—		16,176			—		16,176
Derivative instruments - credit contracts		—		32			—		32			—		12			—		12
Derivative instruments - mortgage banking		—		259			—		259			—		526			—		526
Other liabilities:
Derivative instruments - interest rate products		—		(20,431	)		—		(20,431	)
Derivative instruments - interest rate swaps												—		(15,580	)		—		(15,580	)
Derivative instruments - credit contracts		—		(42	)		—		(42	)		—		(39	)		—		(39	)
Derivative instruments - mortgage banking		—		(120	)		—		(120	)		—		-			—		-
Fair value adjusted through net income	$	—	$	(381	)	$	—	$	(381	)	$	—	$	1,095		$	—	$	1,095
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	3,822		$	—	$	3,822		$	—	$	5,685		$	—	$	5,685
Collateral dependent loans		—		—			12,040		12,040			—		—			48,605		48,605
Other assets:
Long-lived assets held for sale												—		867			—		867
Loan servicing rights		—		—			1,044		1,044			—		—			1,392		1,392
Other real estate owned		—		—			749		749			—		—			2,966		2,966
Total	$	—	$	3,822		$	13,833	$	17,655		$	—	$	6,552		$	52,963	$	59,515

There were no0 transfers between Levels 1 and 2 during the three months ended March 31, 2021. There were 0 liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2021.

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
December 31, 2020
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	6,635		$	—	$	6,635
Mortgage-backed securities		—		621,424			—		621,424
Other liabilities:
Hedging derivative instruments		—		(311	)		—		(311	)
Fair value adjusted through comprehensive income	$	—	$	627,748		$	—	$	627,748
Other assets:
Derivative instruments - cash flow hedges	$	—	$	—		$	—	$	-
Derivative instruments - interest rate swaps		—		19,626			—		19,626
Derivative instruments - credit contracts		—		23			—		23
Derivative instruments - mortgage banking		—		471			—		471
Other liabilities:
Derivative instruments - interest rate swaps		—		(19,837	)		—		(19,837	)
Derivative instruments - credit contracts		—		(86	)		—		(86	)
Derivative instruments - mortgage banking		—		(1	)		—		(1	)
Fair value adjusted through net income	$	—	$	196		$	—	$	196
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	4,305		$	—	$	4,305
Collateral dependent loans		—		—			29,434		29,434
Other assets:
Loan servicing rights		—		—			1,320		1,320
Other real estate owned		—		—			2,966		2,966
Total	$	—	$	4,305		$	33,720	$	38,025

There were 0 transfers between Levels 1 and 2 during the three months ended March 31, 2020. There were no0 liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2020.

Quoted
Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

December 31, 2019

Measured on a recurring basis:

Securities available for sale:

U.S. Government agency and government sponsored enterprises

$
—

$
26,877

$
—

$
26,877

Mortgage-backed securities

—

391,040

—

391,040

Other assets:

Hedging derivative instruments

—

-

—

-

Fair value adjusted through comprehensive income

$
—

$
417,917

$
—

$
417,917

Other assets:

Derivative instruments - interest rate products

$
—

$
6,419

$
—

$
6,419

Derivative instruments - credit contracts

—

13

—

13

Derivative instruments - mortgage banking

—

119

—

119

Other liabilities:

Derivative instruments - interest rate products

—

(6,720
)

—

(6,720
)
Derivative instruments - credit contracts

—

(18
)

—

(18
)
Derivative instruments - mortgage banking

—

(7
)

—

(7
)
Fair value adjusted through net income

$
—

$
(194
)

$
—

$
(194
)
Measured on a nonrecurring basis:

Loans:

Loans held for sale

$
—

$
4,224

$
—

$
4,224

Collateral dependent impaired loans

—

—

3,630

3,630

Other assets:

Loan servicing rights

—

—

1,129

1,129

Other real estate owned

—

—

468

468

Total

$
—

$
4,224

$
5,227

$
9,451

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2019. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2019.

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value as of March 31, 2021 (dollars in thousands).

Asset

Fair

Value

Valuation Technique

Unobservable Input

Value or Range

Fair

Value

Valuation Technique

Unobservable Input

Value or Range

Collateral dependent loans

12,040

Appraisal of collateral ⁽¹⁾

Appraisal adjustments ⁽²⁾

11% ⁽³⁾

48,605

Appraisal of collateral ⁽¹⁾

Appraisal adjustments ⁽²⁾

28.6% ⁽³⁾/ 0 - 35%

Loan servicing rights

1,044

Discounted cash flow

Discount rate

10.2% ⁽³⁾

1,392

Discounted cash flow

Discount rate

10.3% ⁽³⁾

Constant prepayment rate

18.4% ⁽³⁾

Constant prepayment rate

16.7% ⁽³⁾

Other real estate owned

749

Appraisal of collateral ⁽¹⁾

Appraisal adjustments ⁽²⁾

31% ⁽³⁾

2,966

Appraisal of collateral ⁽¹⁾

Appraisal adjustments ⁽²⁾

27.7% ⁽³⁾/ 20 - 46%

There were no0 assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

The estimated fair value approximates carrying value for cash and cash equivalents, Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable.

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company’s financial instruments as of the dates indicated.

	Level in	March 31, 2020				December 31, 2019				Level in	March 31, 2021				December 31, 2020
	Fair Value			Estimated				Estimated		Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair		Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value		Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	152,168	$	152,168	$	112,947	$	112,947	Level 1	$	344,790	$	344,790	$	93,878	$	93,878
Securities available for sale	Level 2		444,845		444,845		417,917		417,917	Level 2		753,489		753,489		628,059		628,059
Securities held to maturity, net	Level 2		346,239		354,571		359,000		363,259	Level 2		256,127		264,329		271,973		282,035
Loans held for sale	Level 2		3,822		3,822		4,224		4,224	Level 2		5,685		5,685		4,305		4,305
Loans	Level 2		3,181,831		3,208,870		3,186,875		3,201,814	Level 2		3,555,953		3,609,735		3,513,284		3,549,770
Loans ⁽¹⁾	Level 3		12,040		12,040		3,630		3,630	Level 3		48,605		48,605		29,434		29,434
Long-lived assets held for sale										Level 2		867		867		—		—
Accrued interest receivable	Level 1		12,198		12,198		11,308		11,308	Level 1		16,422		16,422		15,635		15,635
FHLB and FRB stock	Level 2		13,167		13,167		20,637		20,637
Derivative instruments – cash flow hedge	Level 2		2		2		—		—
Derivative instruments – cash flow hedges										Level 2		1,677		1,677		—		—
Derivative instruments – interest rate products	Level 2		19,921		19,921		6,419		6,419	Level 2		16,176		16,176		19,626		19,626
Derivative instruments – credit contracts	Level 2		32		32		13		13	Level 2		12		12		23		23
Derivative instruments – mortgage banking	Level 2		259		259		119		119	Level 2		526		526		471		471
FHLB and FRB stock										Level 2		8,729		8,729		8,619		8,619
Financial liabilities:
Non-maturity deposits	Level 1		2,727,840		2,727,840		2,375,486		2,375,486	Level 1		3,799,619		3,799,619		3,392,774		3,392,774
Time deposits	Level 2		1,059,345		1,062,306		1,180,189		1,179,991	Level 2		916,395		916,809		885,593		887,113
Short-term borrowings	Level 1		109,500		109,500		275,500		275,500	Level 1		—		—		5,300		5,300
Long-term borrowings	Level 2		32,291		42,653		39,273		41,083	Level 2		73,679		79,299		73,623		83,953
Accrued interest payable	Level 1		11,053		11,053		10,942		10,942	Level 1		4,624		4,624		4,381		4,381
Derivative instruments – cash flow hedges										Level 2		—		—		311		311
Derivative instruments – interest rate products	Level 2		20,431		20,431		6,720		6,720	Level 2		15,580		15,580		19,837		19,837
Derivative instruments – credit contracts	Level 2		42		42		18		18	Level 2		39		39		86		86
Derivative instruments – mortgage banking	Level 2		120		120		7		7	Level 2		—		—		1		1

The Company has ~~two~~1 reportable ~~segments:~~segment, Banking, which includes all of the company’s retail and ~~Non-Banking. These~~commercial banking operations. This reportable ~~segments have~~segment has been identified and organized based on the nature of the underlying products and services applicable to ~~each~~the segment, the type of customers to whom those products and services are offered and the distribution channel through which those products and services are made available.

~~The Banking segment includes all of~~All other segments that do not meet the ~~Company’s retail and commercial banking operations. The Non-Banking segment~~quantitative threshold for separate reporting have been grouped as “All Other.” This “All Other” grouping includes the activities of SDN, a full-service insurance agency that provides a broad range of insurance services to both personal and business clients, and Courier Capital and HNP Capital, our investment advisor and wealth management firms that provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement ~~plans.~~plans, and Holding ~~company~~Company amounts, which are the primary differences between segment amounts and consolidated totals, ~~and are reflected in the Holding Company and Other column below,~~ along with amounts to eliminate balances and transactions between segments.

The following tables present information regarding our business segments as of and for the periods indicated (in thousands).

	Banking		Non- Banking		Holding Company and Other		Consolidated Totals		Banking		All Other		Consolidated Totals
March 31, 2020
March 31, 2021
Goodwill	$	48,536	$	17,526	$	—	$	66,062	$	48,536	$	18,137	$	66,673
Other intangible assets, net		77		8,490		—		8,567		18		7,837		7,855
Total assets		4,435,724		35,619		425		4,471,768		5,291,625		37,431		5,329,056
December 31, 2019
December 31, 2020
Goodwill	$	48,536	$	17,526	$	—	$	66,062	$	48,536	$	17,526	$	66,062
Other intangible assets, net		98		8,763		—		8,861		28		7,699		7,727
Total assets		4,346,615		36,733		830		4,384,178		4,875,673		36,633		4,912,306

	Banking			Non- Banking			Holding Company and Other			Consolidated Totals			Banking			All Other ⁽¹⁾			Consolidated Totals
Three months ended March 31, 2020
Three months ended March 31, 2021
Net interest income (expense)	$	33,742		$	—		$	(618	)	$	33,124		$	38,918		$	(1,061	)	$	37,857
Provision for credit losses		(13,915	)		—			—			(13,915	)
(Provision) benefit for credit losses														1,981			—			1,981
Noninterest income		6,867			3,264			(169	)		9,962			9,275			3,684			12,959
Noninterest expense		(23,778	)		(3,186	)		(758	)		(27,722	)		(22,633	)		(4,107	)		(26,740	)
Income (loss) before income taxes		2,916			78			(1,545	)		1,449			27,541			(1,484	)		26,057
Income tax (expense) benefit		141			(25	)		(438	)		(322	)		(6,035	)		688			(5,347	)
Net income (loss)	$	3,057		$	53		$	(1,983	)	$	1,127		$	21,506		$	(796	)	$	20,710

ITEM 2. Management’s Di~~scussion~~Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.

Statements and financial analysis contained in this Quarterly Report on Form 10-Q that are based on other than historical data are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 (the “Form 10-K”), including, but not limited to, those presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such material differences include, but are not limited to:

We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise readers that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See also Item 1A, Risk Factors, in the Form 10-K ~~and Item 1A, Risk Factors, below~~ for further information. Except as required by law, we do not undertake, and specifically disclaim any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

The Parent is a financial holding company headquartered in New York State, providing diversified financial services through its subsidiaries, Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York-chartered banking subsidiary, the Bank. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, the Capital District of New York and Northern and Central Pennsylvania. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly fees and other revenue from insurance, investment advisory and financial services provided to customers or ancillary services tied to loans and deposits. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition.

Our business strategy has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking and other financial needs of individuals, municipalities and businesses of the local communities surrounding our primary service area. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service that differentiates us from larger competitors, resulting in long-standing and broad-based banking relationships. Our core customers are primarily small- to medium-sized businesses, individuals and community organizations who prefer to build banking, insurance and wealth management relationships with a community bank that combines high quality, competitively-priced products and services with personalized service. Because of our identity and

origin as a locally operated bank, we believe that our level of personal service provides a competitive advantage over larger banks, which tend to consolidate decision-making authority outside local communities.

A key aspect of our current business strategy is to foster a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We believe that we are well-positioned to be a strong competitor within our market area because of our focus on community banking needs and customer service, our comprehensive suite of deposit, loan, insurance and wealth management products typically found at larger banks, our highly experienced management team and our strategically located banking centers. We have evolved to meet changing customer needs by opening what we refer to as financial solution center branches. These financial solution center branches have a smaller footprint than our traditional branches, focus on technology to provide solutions that fit our customer preferences for transacting business with us, and are staffed by certified personal bankers who are trained to meet a broad array of customer needs. In recent years, we have opened four financial solution centers in the Rochester and Buffalo markets. We believe that the foregoing factors all help to grow our core deposits, which supports a central element of our business strategy - the growth of a diversified and high-quality loan portfolio.

Net income ~~decreased $10.4~~increased $19.6 million ~~or 90%,~~to $20.7 million for the first quarter of 2021 compared to $1.1 million for the first quarter of ~~2020 compared to $11.5 million for the first quarter of 2019.~~2020. Net income available to common shareholders for the first quarter of ~~2020~~2021 was ~~$762 thousand,~~$20.3 million, or ~~$0.05~~$1.27 per diluted share, compared with ~~$11.2 million,~~$762 thousand, or ~~$0.70~~$0.05 per diluted share, for the first quarter of last year. Return on average common equity was ~~0.72%~~18.28% and return on average assets was ~~0.10%~~1.66% for the first quarter of ~~2020~~2021 compared to ~~11.79%~~0.72% and ~~1.09%~~0.10%, respectively, for the first quarter of ~~2019.~~2020.

~~First quarter results were negatively~~Net income for both periods was significantly impacted by ~~a significantly higher~~the provision for credit ~~losses of $13.9 million, as compared to $1.2 million in~~losses. In the first quarter of ~~2019. The after-tax impact~~2020, the provision of ~~the higher provision as compared to first quarter of 2019 was $0.59 per diluted share. The higher provision~~$13.9 million was driven by the adoption of the current expected credit loss standard (“CECL”) ~~standard~~ and the impact of the COVID-19 pandemic on the economic environment. The designated loss driver for our CECL model is the national unemployment forecast, which spiked in early 2020 at the onset of the pandemic. In the first quarter of 2021, the provision was a benefit of $2.0 million due to continued improvement in national unemployment and positive trends in qualitative factors, resulting in a release of some of our credit loss reserves.

Net interest income totaled $37.9 million in the first quarter of 2021, up from $33.1 million in the first quarter of ~~2020, up from $31.8 million in the first quarter of 2019. This~~2020. The increase was primarily the result of ~~a change~~an increase in interest-earning assets and the ~~interest-earning asset mix as loans became a larger percentage~~positive impact of ~~the portfolio. Average loans were up $123.4 million~~PPP loan forgiveness in the first quarter of ~~2020~~2021. Average loans and average investment securities were up $417.8 million and $134.7 million, respectively, in the first quarter of 2021 compared to the same quarter in ~~2019.~~ 2020.

The provision for credit losses - loans was a $1.7 million benefit in the first quarter of 2021 compared to a provision of $13.4 million in the first quarter of ~~2020 compared to $1.2 million in the first quarter of 2019.~~2020. Net charge-offs during the recent quarter were ~~$10.1 million, up~~$887 thousand, down from ~~$1.8~~$10.1 million in the first quarter of ~~2019.~~2020. Net charge-offs expressed as an annualized percentage of average loans outstanding were ~~1.27%~~0.10% during the first quarter of ~~2020~~2021 compared with ~~0.23%~~1.27% in the first quarter of ~~2019.~~2020. See the “Allowance for Credit Losses - Loans” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion regarding the ~~increase~~change in the provision (benefit) for credit losses - loans and the ~~increase~~decrease in net charge-offs.

Noninterest income totaled ~~$10.0~~$13.0 million in the first quarter of ~~2020,~~2021, compared to ~~$9.1~~$9.9 million in the first quarter of ~~2019.~~2020. The increase isin noninterest income for the first quarter was primarily ~~attributed~~due to increases in income from ~~derivatives~~derivative instruments, net, ~~and~~ net gain on sale of loans held for sale, income from investments in limited partnerships and investment ~~securities.~~advisory income, partially offset by a decrease in service charges on deposits. Income from derivative instruments, net of ~~$746 thousand~~$1.9 million was recognized in the first quarter of ~~2020 driven primarily by an increase~~2021 as compared to $746 thousand in the first quarter of 2020. Income from derivative instruments, net is based on the number and value of interest rate swap transactions ~~executed. The Company sold investment securities during~~executed combined with the impact of changes in the fair market value of borrower-facing trades, which were positively impacted by the recent increase in longer-term interest rates. Net gain on sale of loans held for sale of $1.1 million was recognized in the first quarter of ~~2020 generating a net gain~~2021 due to higher loan volume combined with an increase in transaction margins. Investments in limited partnerships of ~~$221~~$855 thousand was recognized in the first quarter of 2021 as compared to ~~a loss of $53~~$213 thousand in the first quarter of ~~2019.~~

~~Noninterest expense~~2020. Investment advisory income of $2.8 million was recognized in the first quarter of ~~2020 totaled $27.7~~2021 due to increases in assets under management driven by a combination of market gains, new customer accounts and contributions to existing accounts. The Company recognized $1.3 million in service charges on deposits in the first quarter of 2021 as compared ~~with $25.2~~to $1.6 million in the first quarter of ~~2019.~~2020. Insufficient fund fees, captured in service charges on deposits, remained lower than historic levels after the first quarter of 2020, potentially due to the positive impact of stimulus programs on consumer account balances.

Noninterest expense totaled $26.7 million in the first quarter of 2021, compared to $27.7 million in the first quarter of 2020. The ~~increase~~decrease in noninterest expense was primarily the result of ~~increases~~decreases in salaries and employee benefits and ~~professional services.~~occupancy and equipment, partially offset by increases in computer and data processing and FDIC assessments. The ~~increase~~decrease in salaries and employee benefits ~~was~~reflects a streamlining of retail branches to better align with shifting customer needs and preferences, including the decision in 2020 to close a total of seven branches. Computer and data processing expense increased primarily ~~a result of higher benefits expense. The increase in professional fees was primarily~~due to costs related to the ~~timing~~Bank’s online and mobile platform, Five Star Bank Digital Banking, launched in the second quarter of ~~fees for consulting and advisory projects.~~2020. FDIC assessments increased primarily as the result of an increase in total assets combined with the impact of a $70 thousand credit from 2018 that was utilized in the first quarter of 2020.

The regulatory Common Equity Tier 1 Ratio and Total Risk-Based Capital Ratio were ~~10.05%~~10.26%, and ~~12.54%~~13.58%, respectively, at March 31, ~~2020.~~2021. See the “Liquidity and Capital Management” section of this Management’s Discussion and Analysis for further discussion regarding regulatory capital and the Basel III capital rules.

On November 4, 2020, the Company announced a stock repurchase program for up to 801,879 shares of common stock, or approximately 5% of the Company’s outstanding common shares. Shares may be repurchased in open market transactions and pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The repurchase program does not obligate the Company to purchase any shares and it may be extended, modified or discontinued at any time.

No shares were repurchased in 2020 under this program. Year-to-date, the Company has repurchased 238,439 shares for an average repurchase price of $24.30 per share, inclusive of transaction costs.

On February 1, 2021, the Company’s insurance subsidiary SDN completed the acquisition of assets of Landmark Group (“Landmark”). A staple of the Rochester community since 1984, Landmark was an independent insurance brokerage firm delivering insurance, surety and risk management solutions across many business sectors including construction, manufacturing, real estate and technology, as well as individual personal insurance. Landmark Founder and Chairman Kelly M. Shea and President Christopher K. Shea remain with SDN to lead Rochester operations and continue their long-term relationship with clients.

Pay by Phone fees; ~~waiving~~waived all late fees; ~~offering~~offered the opportunity for monthly mortgage, home equity loan or home equity line payment relief; ~~offering~~offered the opportunity to defer unsecured consumer loans or lines of credit and secured consumer loans and lines of credit payments; and ~~offering~~offered unsecured personal loans up to $5,000, up to 60 months at 2.95% APR subject to credit ~~approval (additional terms and conditions may apply).~~

Business customers are being faced with challenging and unique circumstances. The Bank’s relationship bankers are highly skilled in providing tailored financial solutions designed to meet the specific, individual needs of each business and they are actively reaching out to each business customer to understand how the Bank can help, given each unique business circumstance.approval. ATM access fees were reinitiated on September 19, 2020.

As part of ~~April 23, 2020,~~the first round of PPP loans we have helped more than ~~600~~1,700 customers obtain more than ~~$200~~$270 million in loans ~~through~~as of December 31, 2020. Of those loans, we have helped customers complete the forgiveness process for approximately $87 million of loans in the first three months of 2021. Also, during the first three months of 2021, we have helped customers obtain approximately $96 million of new PPP loans under the second round of the PPP. Additionally, approximately 7%4% of our commercial loan and mortgage customers, 6%1% of our residential real estate loans and lines customers and 6%less than 1% of our indirect loans customers have ~~received~~active payment ~~deferrals.~~deferrals in accordance with the previously noted loan modifications under the CARES Act or agencies guidelines.

Net interest income is our primary source of revenue, comprising ~~77%~~74% of revenue during the three months ended March 31, ~~2020.~~2021. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.

We use interest rate spread and net interest margin to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds (“net free funds”), principally noninterest-bearing demand deposits and shareholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt investment securities is computed on a taxable equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a taxable equivalent basis.

The following table reconciles interest income per the consolidated statements of income to interest income adjusted to a fully taxable equivalent basis (dollars in thousands):

	Three months ended March 31,				Three months ended March 31,
	2020		2019		2021		2020
Interest income per consolidated statements of income	$	41,653	$	41,514	$	41,273	$	41,653
Adjustment to fully taxable equivalent basis		246		302		184		246
Interest income adjusted to a fully taxable equivalent basis		41,899		41,816		41,457		41,899
Interest expense per consolidated statements of income		8,529		9,722		3,416		8,529
Net interest income on a taxable equivalent basis	$	33,370	$	32,094	$	38,041	$	33,370

Analysis of Net Interest Income for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020

Net interest income on a taxable equivalent basis for the three months ended March 31, ~~2020,~~2021, was ~~$33.4~~$38.0 million, an increase of ~~$1.3~~approximately $4.7 million versus the comparable quarter last year of ~~$32.1~~$33.4 million. The increase in net interest income was due ~~primarily~~ to ~~an increase~~deferred fee amortization of $2.9 million on PPP loans, which included accelerated amortization of fees on PPP loans paid-off through the forgiveness process, and increases in average loans and average investment securities of ~~$123.4~~$417.8 million, or 4%13%, and $134.7 million, or 17%, respectively, compared to the first quarter of ~~2019, partially offset by a decrease~~2020. Average loans in ~~investment securities of $107.0 million, or 12%, compared to~~ the first quarter of ~~2019. The decrease in investment securities is primarily the result~~2021 included PPP loans net of ~~the redeployment~~deferred fees of ~~assets from investment securities into loans, resulting in loans comprising a higher percentage of total interest-earning assets.~~$248.5 million.

Our net interest margin for the first quarter of ~~2020~~2021 was ~~3.31%~~3.29%, ~~seven basis~~two-basis points ~~higher~~lower than ~~3.24%~~3.31% for the same period in ~~2019.~~2020. This comparable period ~~increase~~decrease was a function of a ~~ten-basis~~16-basis point lower contribution from net free funds, partially offset by a 14-basis point increase in the interest rate ~~spread, partially offset by a three-basis point lower contribution from net free funds.~~spread. The higher interest rate spread was a result of ~~an eight-basis~~a 55-basis point decrease in the yield on average interest-earning assets and ~~an 18-basis~~a 69-basis point decrease in the cost of average interest-bearing liabilities.

For the first quarter of ~~2020,~~2021, the yield on average interest earning assets of ~~4.15%~~3.60% was ~~eight basis~~55-basis points lower than the first quarter of ~~2019~~2020 of ~~4.23%~~4.15%. Loan yields decreased ~~16 basis~~47-basis points during the first quarter of ~~2020~~2021 to ~~4.61%~~4.14% from ~~4.77%~~4.61%. The yield on investment securities ~~increased eleven basis~~decreased 57-basis points during the first quarter of ~~2020~~2021 to ~~2.48%~~1.91% from ~~2.37%~~2.48%. Overall, the earning asset rate changes decreased interest income by ~~$0.9~~$5.7 million during the first quarter of ~~2020~~2021 and a favorable volume variance increased interest income by ~~$1.0~~$5.3 million, which collectively drove a ~~$0.1 million increase~~$442 thousand decrease in interest income.

Average interest-earning assets were $4.67 billion for the first quarter of 2021 compared to $4.05 billion for the first quarter of 2020, ~~compared to $4.00 billion for the first quarter of 2019,~~ an increase of ~~$57.7~~$616.3 million, or 1%15%, from the comparable quarter last year, with average loans up ~~$123.4~~$417.8 million from ~~$3.09~~$3.21 billion to ~~$3.21~~$3.63 billion and average securities ~~down $107.0~~up approximately $134.7 million from ~~$886.9~~$780.0 million to ~~$780.0~~$914.6 million. The growth in average loans reflected increases in the commercial loans, ~~and~~ residential real estate loans and other consumer loans categories. Commercial loans, in particular, were up ~~$146.5~~$411.6 million from ~~$1.53~~$1.67 billion to ~~$1.67~~$2.08 billion, or ~~10%~~25%, from the first quarter of ~~2019.~~2020. The average balance of PPP loans net of deferred fees was $248.5 million in the first quarter of 2021 and the PPP loans are included in Commercial loans. Residential real estate loans were up ~~$48.9~~$24.5 million, partially offset by a decrease of ~~$6.8~~$15.0 million in residential real estate lines. Consumer indirect loans ~~declined~~decreased by ~~$64.5~~$3.9 million ~~partially offsetting the increases in the~~and other ~~loan portfolios.~~consumer loans increased by $701 thousand. Loans comprised ~~79.3%~~77.8% of average interest-earning assets during the first quarter of ~~2020~~2021 compared to ~~77.4%~~79.3% during the first quarter of ~~2019.~~2020. Loans generally have significantly higher yields compared to securities and federal funds sold and interest-bearing deposits and, as such, have a more positive effect on the net interest margin. The yield on average loans was ~~4.61%~~4.14% for the first quarter of ~~2020,~~2021, a decrease of ~~16 basis~~47-basis points compared to ~~4.77%~~4.61% for the comparable quarter in ~~2019. The~~2020. An increase in the volume of average loans resulted in a ~~$1.5~~$4.5 million increase in interest income, partially offset by a ~~$1.1~~$4.3 million decrease due to the unfavorable rate variance. Securities represented ~~19.2%~~19.6% of average interest-earning assets during the first quarter of ~~2020~~2021 compared to ~~22.2%~~19.2% during the first quarter of ~~2019.~~2020. The ~~decrease in the volume of average securities~~unfavorable rate variance resulted in a ~~$651 thousand~~$1.1 million decrease in interest income from investment securities, partially offset by a ~~$230~~$674 thousand increase due to an increase in the ~~favorable rate variance.~~average volume.

The cost of average interest-bearing liabilities of 0.40% in the first quarter of 2021 compared to 1.09% in the first quarter of 2020, ~~compared to 1.27% in~~was 69-basis points lower and the ~~first quarter of 2019, was 18 basis points lower. The~~ cost of average interest-bearing deposits decreased ~~six basis~~69-basis points from ~~1.02%~~0.96% to ~~0.96% and the cost of~~0.27%. Average short-term borrowings decreased ~~59 basis points~~$168.6 thousand from ~~2.70%~~$169.8 thousand to ~~2.11%~~$1.2 thousand in the first quarter of ~~2020~~2021 compared to the same quarter of ~~2019.~~2020. The decrease in ~~the cost of~~average short-term borrowings was a result of ~~decreases in~~ the ~~federal funds rate in the first quarter of 2020.~~Company’s decision to utilize brokered deposits as a cost-effective alternative to Federal Home Loan Bank borrowings. The cost of long-term borrowings for the first quarter of ~~2020~~2021 decreased ~~one basis point~~44-basis points from ~~6.30%~~6.29% to ~~6.29%~~5.85% compared to the same quarter of ~~2019.~~2020. Overall, interest-bearing liability rate and volume decreases resulted in ~~$1.2~~$5.1 million of lower interest expense.

Average interest-bearing liabilities of ~~$3.14~~$3.45 billion in the first quarter of ~~2020~~2021 were ~~$40.3~~$317.3 million, or 1%10%, higher than the first quarter of ~~2019.~~2020. On average, interest-bearing deposits grew ~~$216.9~~$451.6 million from ~~$2.71~~$2.93 billion to ~~$2.93~~$3.38 billion, ~~while~~and noninterest-bearing demand deposits (a principal component of net free funds) were ~~down $5.3~~up $322.8 million from ~~$727.3~~$722.0 million to ~~$722.0~~$1,044.7 million. The increase in average deposits was due to ~~successful business development efforts~~growth in ~~retail banking,~~non-public demand and an increase in reciprocal deposit ~~programs, and higher utilization of brokered deposits as a funding source.~~programs. For further discussion of the reciprocal deposit programs, refer to the “Funding Activities - Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing deposit rate and volume changes resulted in a ~~$219 thousand increase~~$4.8 million decrease in interest expense during the first quarter of ~~2020.~~2021. Average borrowings decreased ~~$176.7~~$134.3 million from ~~$385.8~~$209.1 million to ~~$209.1~~$74.8 million compared to the first quarter of ~~2019.~~2020. Overall, short and long-term borrowing rate and volume changes resulted in ~~$1.4 million~~$329 thousand of lower interest expense during the first quarter of ~~2020.~~2021.

The following ~~table~~tables sets forth certain information relating to the consolidated balance sheets and reflects the average yields earned on interest-earning assets, as well as the average rates paid on interest-bearing liabilities for the periods indicated (in thousands).

	Three months ended March 31,																Three months ended March 31,
	2020								2019								2021								2020
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	59,309		$	211		1.43	%	$	17,955		$	102		2.30	%	$	123,042		$	27		0.09	%	$	59,309		$	211		1.43	%
Investment securities ⁽¹⁾:
Taxable		589,182			3,657		2.49			653,547			3,807		2.33			772,360			3,496		1.81			589,182			3,657		2.49
Tax-exempt ⁽²⁾		190,712			1,171		2.45			233,331			1,441		2.47			142,209			875		2.46			190,712			1,171		2.45
Total investment securities		779,894			4,828		2.48			886,878			5,248		2.37			914,569			4,371		1.91			779,894			4,828		2.48
Loans:
Commercial business		570,886			6,514		4.59			547,182			7,243		5.37			798,866			8,413		4.27			570,886			6,514		4.59
Commercial mortgage		1,100,660			13,314		4.87			977,818			12,573		5.21			1,284,290			12,245		3.87			1,100,660			13,314		4.87
Residential real estate loans		578,407			5,448		3.77			529,522			5,129		3.87			602,866			5,260		3.49			578,407			5,448		3.77
Residential real estate lines		102,680			1,183		4.64			109,529			1,427		5.28			87,681			745		3.45			102,680			1,183		4.64
Consumer indirect		846,800			9,919		4.71			911,252			9,600		4.27			842,873			9,988		4.81			846,800			9,919		4.71
Other consumer		15,466			482		12.53			16,226			494		12.36			16,167			408		10.23			15,466			482		12.53
Total loans		3,214,899			36,860		4.61			3,091,529			36,466		4.77			3,632,743			37,059		4.14			3,214,899			36,860		4.61
Total interest-earning assets		4,054,102			41,899		4.15			3,996,362			41,816		4.23			4,670,354			41,457		3.60			4,054,102			41,899		4.15
Less: Allowance for credit losses		(40,615	)							(34,633	)							(53,998	)							(40,615	)
Other noninterest-earning assets		362,638								321,262								428,824								362,638
Total assets	$	4,376,125							$	4,282,991							$	5,045,180							$	4,376,125
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	667,533		$	344		0.21	%	$	668,448			336		0.20	%	$	790,996		$	256		0.13	%	$	667,533			344		0.21	%
Savings and money market		1,143,628			1,581		0.56			965,829			985		0.41			1,724,577			890		0.21			1,143,628			1,581		0.56
Time deposits		1,116,736			5,094		1.83			1,076,687			5,478		2.06			863,924			1,089		0.51			1,116,736			5,094		1.83
Total interest-bearing deposits		2,927,897			7,019		0.96			2,710,964			6,799		1.02			3,379,497			2,235		0.27			2,927,897			7,019		0.96
Short-term borrowings		169,827			892		2.11			346,546			2,305		2.70			1,178			119		40.97			169,827			892		2.11
Long-term borrowings		39,279			618		6.29			39,209			618		6.30			73,636			1,062		5.85			39,279			618		6.29
Total borrowings		209,106			1,510		2.90			385,755			2,923		3.06			74,814			1,181		6.40			209,106			1,510		2.90
Total interest-bearing liabilities		3,137,003			8,529		1.09			3,096,719			9,722		1.27			3,454,311			3,416		0.40			3,137,003			8,529		1.09
Noninterest-bearing demand deposits		721,975								727,321								1,044,733								721,975
Other noninterest-bearing liabilities		75,931								57,993								77,501								75,931
Shareholders’ equity		441,216								400,958								468,635								441,216
Total liabilities and shareholders’ equity	$	4,376,125							$	4,282,991							$	5,045,180							$	4,376,125
Net interest income (tax-equivalent)				$	33,370							$	32,094							$	38,041							$	33,370
Interest rate spread							3.06	%							2.96	%							3.20	%							3.06	%
Net earning assets	$	917,099							$	899,643							$	1,216,043							$	917,099
Net interest margin (tax-equivalent)							3.31	%							3.24	%							3.29	%							3.31	%
Ratio of average interest-earning assets to average interest-bearing liabilities							129.23	%							129.05	%							135.20	%							129.23	%

The following table presents, on a tax-equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the periods indicated. The change in interest income not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each (in thousands):

	Three months ended March 31, 2020 vs. 2019									Three months ended March 31, 2021 vs. 2020
Increase (decrease) in:	Volume			Rate			Total			Volume			Rate			Total
Interest income:
Federal funds sold and interest-earning deposits	$	159		$	(50	)	$	109		$	113		$	(297	)	$	(184	)
Investment securities:
Taxable		(390	)		240			(150	)		972			(1,133	)		(161	)
Tax-exempt		(262	)		(8	)		(270	)		(298	)		2			(296	)
Total investment securities		(652	)		232			(420	)		674			(1,131	)		(457	)
Loans:
Commercial business		303			(1,032	)		(729	)		2,433			(534	)		1,899
Commercial mortgage		1,516			(775	)		741			2,014			(3,083	)		(1,069	)
Residential real estate loans		463			(144	)		319			224			(412	)		(188	)
Residential real estate lines		(85	)		(159	)		(244	)		(157	)		(281	)		(438	)
Consumer indirect		(708	)		1,027			319			(46	)		115			69
Other consumer		(24	)		12			(12	)		21			(95	)		(74	)
Total loans		1,465			(1,071	)		394			4,489			(4,290	)		199
Total interest income		972			(889	)		83			5,276			(5,718	)		(442	)
Interest expense:
Deposits:
Interest-bearing demand		-			8			8			56			(144	)		(88	)
Savings and money market		203			393			596			578			(1,269	)		(691	)
Time deposits		198			(582	)		(384	)		(954	)		(3,051	)		(4,005	)
Total interest-bearing deposits		401			(181	)		220			(320	)		(4,464	)		(4,784	)
Short-term borrowings		(1,000	)		(413	)		(1,413	)		(1,720	)		947			(773	)
Long-term borrowings		1			(1	)		—			500			(56	)		444
Total borrowings		(999	)		(414	)		(1,413	)		(1,220	)		891			(329	)
Total interest expense		(598	)		(595	)		(1,193	)		(1,540	)		(3,573	)		(5,113	)
Net interest income	$	1,570		$	(294	)	$	1,276		$	6,816		$	(2,145	)	$	4,671

The provision for credit losses for the three months ended March 31, ~~2020~~2021 was ~~$13.9~~a benefit of $2.0 million, compared to ~~$1.2~~a provision of $13.9 million for the corresponding ~~periods~~period in ~~2019.~~2020. The ~~increase~~benefit in the first quarter of 2021 was due to continued improvement in the national unemployment forecast, the designated loss driver for our CECL model, and positive trends in qualitative factors, resulting in a release of credit loss reserves. The provision in the first quarter of 2020 was driven by the adoption of ~~the~~ CECL ~~standard, higher net charge-offs~~ and the impact of the COVID-19 pandemic on the economic environment. The increase in net charge-offs is primarily attributable to one commercial credit that was downgraded and partially charged-off during the first quarter of 2020. The borrower’s business was related to the hospitality industry and the downgrade and charge-off were precipitated by the impact of COVID-19. The provision for credit losses - loans varies based primarily on forecasted unemployment rates, loan growth, net charge-offs, collateral values associated with collateral dependent loans and qualitative factors.

See the “Allowance for Credit Losses - Loans” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion.

The following table details the major categories of noninterest income for the periods presented (in thousands):

	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Service charges on deposits	$	1,587		$	1,680		$	1,292		$	1,587
Insurance income		1,349			1,378			1,396			1,349
ATM and debit card		1,602			1,443
Card interchange income								1,958			1,602
Investment advisory		2,246			2,216			2,772			2,246
Company owned life insurance		465			410			657			465
Investments in limited partnerships		213			232			855			213
Loan servicing		7			110			97			7
Income from derivative instruments, net		746			168			1,875			746
Net gain on sale of loans held for sale		304			182			1,078			252
Net gain (loss) on investment securities		221			(53	)		74			221
Net gain on other assets		64			49
Net gain (loss) on other assets								(5	)		64
Net loss on tax credit investments		(40	)		-			(85	)		(40	)
Other		1,198			1,305			995			1,198
Total noninterest income	$	9,962		$	9,120		$	12,959		$	9,910

Service charges on deposits decreased ~~$93~~$295 thousand, or 6%19%, to $1.3 million for the first quarter of 2021, compared to $1.6 million for the first quarter of ~~2020 compared~~2020. The decrease was primarily due to ~~$1.7~~decreased insufficient fund fees in the first quarter of 2021, potentially due to the positive impact of stimulus programs on consumer account balances.

Card interchange income increased $356 thousand to $2.0 million for the first quarter of ~~2019. The decrease was primarily due to our COVID-19 relief initiatives implemented on March 23, 2020, including waiving or eliminating certain fees.~~

~~ATM and debit card income increased $159 thousand, or 11%,~~2021, compared to $1.6 million for the first quarter of ~~2020 compared~~2020. The increase was primarily due to ~~$1.4~~the impact of the COVID-19 pandemic on customer behavior in the last half of March 2020.

Investment advisory income increased $526 thousand to $2.8 million for the first quarter of ~~2019.~~2021, compared to $2.2 million for the first quarter of 2020. The increase was primarily ~~due~~the result of an increase in assets under management driven by a combination of market gains, new customer accounts and contributions to ~~increases~~existing accounts in ~~consumer debit card activity.~~2021.

Income from investments in limited partnerships ~~decreased $19~~increased $642 thousand, ~~or 8%,~~to $855 thousand for the first quarter of 2021, compared to $213 thousand for the first quarter of ~~2020 compared to $232 thousand for the first quarter of 2019.~~2020. We have investments in limited partnerships, primarily small business investment companies, and account for these investments under the equity method. The income from these equity method investments fluctuates based on the maturity and performance of the underlying investments.

Loan servicing income decreased $103 thousand to $7 thousand for the first quarter of 2020 compared to $110 thousand for the first quarter of 2019. The decrease was primarily due to recognition of write-downs of the mortgage service right (“MSR”) portfolio due to the impact of lower interest rates on prepayment assumptions and the value of the MSR portfolio.

Income from derivative instruments, net increased ~~$578 thousand~~$1.1 million to $1.9 million for the first quarter of 2021, compared to $746 thousand for the first quarter of ~~2020 compared to $168 thousand for the first quarter of 2019. The increase~~2020. Income from ~~the first quarter of 2019 was primarily the result of an increase in~~derivative instruments, net is based on the number and value of interest rate swap transactions ~~executed.~~executed during the quarter combined with the impact of changes in the fair market value of borrower-facing trades, which were positively impacted by the recent increase in longer-term interest rates.

Net gain on ~~investment securities~~sale of loans held for sale was ~~$221~~$1.1 million for the first quarter of 2021, compared to $252 thousand for the first quarter of ~~2020 compared~~2020. The increase was primarily due to ~~a net loss of $53 thousand for the first quarter of 2019.~~increased volume combined with an increase in transaction margins.

The following table details the major categories of noninterest expense for the periods presented (in thousands):

	Three months ended March 31,				Three months ended March 31,
	2020		2019		2021		2020
Salaries and employee benefits	$	15,014	$	14,001	$	14,465	$	15,014
Occupancy and equipment		3,756		3,473		3,382		3,756
Professional services		2,152		1,158		1,895		2,152
Computer and data processing		2,673		2,336		3,121		2,673
Supplies and postage		553		534		484		553
FDIC assessments		372		512		765		372
Advertising and promotions		555		520		324		555
Amortization of intangibles		294		323		271		294
Other		2,353		2,314		2,033		2,301
Total noninterest expense	$	27,722	$	25,171	$	26,740	$	27,670

Salaries and employee benefits expense ~~increased~~decreased by ~~$1.0~~$549 thousand, or 4%, to $14.5 million ~~or 7%,~~for the first quarter of 2021, compared to $15.0 million for the first quarter of ~~2020 compared~~2020. The decrease in the first three months of 2021 reflects a streamlining of retail branches to ~~$14.0~~better align with shifting customer needs and preferences, including the closure of seven branches since the first quarter of 2020.

Professional services expense decreased $257 thousand, or 12%, to $1.9 million for the first quarter of ~~2019. The increase was primarily the result of investments in personnel, coupled with the timing of merit increases that are effective in early March each year.~~

~~Occupancy and equipment expense increased $283 thousand, or 8%, to $3.8 million for the first quarter of 2020~~2021, compared ~~to $3.5 million for the first quarter of 2019. The increase was primarily due to the investments in facilities.~~

~~Professional services expense increased $1.0 million, or 86%,~~ to $2.2 million for the first quarter of ~~2020 compared to $1.2 million for the first quarter of 2019.~~2020. The ~~increase~~decrease was primarily due to the timing and level of audit fees and fees for consulting and advisory ~~projects. Consulting fees~~projects, including our improvement initiatives. Expenses related to ~~our~~ improvement initiatives totaled $180 thousand for the first quarter of 2021 and $599 thousand for the first quarter of ~~2020 and $83 thousand for the first quarter of 2019.~~2020.

Computer and data processing expense increased ~~$337~~$448 thousand, or ~~14%~~17%, to $3.1 million for the first quarter of 2021, compared to $2.7 million for the first quarter of ~~2020 compared~~2020. The increase in computer and data processing expense was primarily due to ~~$2.3 million~~investments in technology and reflects costs related to the Bank’s new online and mobile platform, Five Star Bank Digital Banking, launched in the second quarter of 2020.

FDIC assessments increased $393 thousand to $765 thousand for the first quarter of ~~2019. The increase was primarily due to the investments in software related to our improvement initiatives.~~

~~FDIC assessments decreased $140 thousand, or 27%,~~2021, compared to $372 thousand for the first quarter of ~~2020~~2020. The increase as compared to ~~$512 thousand for~~ the first quarter of ~~2019. In 2018,~~2020 was the ~~FDIC minimum reserve ratio~~result of ~~1.35%~~an increase in total assets combined with the impact of estimated insured deposits was exceeded, resulting in credits to institutions for assessments that contributed to growth in the reserve ratio. Credits are applicable to regular assessments for quarters in which the reserve ratio is at least 1.38%. A remaining credit ofa $70 thousand credit from 2018 that was ~~used~~utilized in the first quarter of 2020. ~~The remaining decrease compared to the first quarter of 2019 was the result of a lower FDIC rate in the first quarter of 2020.~~

Advertising and promotions expense increased $35 thousand, or 7%, to $555 thousand for the first quarter of 2020 compared to $520 thousand for the first quarter of 2019. Advertising and promotions expense was reduced in March 2020 when the COVID-19 pandemic impacted operations in Western New York.

Our efficiency ratio for the first quarter of ~~2020~~2021 was ~~64.31%~~52.51% compared with ~~60.99%~~64.26% for the first quarter of ~~2019.~~2020. The ~~higher~~lower efficiency ratio ~~is a~~was primarily the result of ~~the higher noninterest expenses~~an increase in net interest income, associated with ~~our improvement initiatives.~~an increase in average interest-earning assets, and an increase in noninterest income compared to the prior year quarter. The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease indicates a more efficient allocation of resources. The efficiency ratio, a banking industry financial measure, is not required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.

For the three months ended March 31, ~~2020,~~2021, we recorded income tax expense of $5.3 million, versus $322 thousand ~~versus $3.0 million~~ for the same period in the prior year. In the first quarter of 2021 and 2020, the Company ~~placed~~recognized tax credit investments ~~in service~~ resulting in a ~~$197 thousand~~ reduction in income tax expense of $244 thousand and $197 thousand, respectively, and a ~~$40 thousand~~ net loss recorded in noninterest ~~income.~~income of $85 thousand and $40 thousand, respectively.

Our effective tax rates for the first three months of 2021 and 2020 were 20.5% and ~~2019 were~~ 22.2% ~~and 20.8%~~, respectively. Effective tax rates are typically impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities, ~~and~~ earnings on ~~company~~Company owned life ~~insurance.~~insurance and the impact of tax credit investments. In addition, our effective tax rate for ~~2020~~2021 and ~~2019~~2020 reflects the New York State tax benefit generated by our real estate investment trust.

The following table summarizes the composition of our investment securities portfolio as of the dates indicated (in thousands):

	Investment Securities Portfolio Composition									Investment Securities Portfolio Composition
	March 31, 2020					December 31, 2019				March 31, 2021					December 31, 2020
	Amortized			Fair		Amortized		Fair		Amortized			Fair		Amortized			Fair
	Cost			Value		Cost		Value		Cost			Value		Cost			Value
Securities available for sale:
U.S. Government agency and government-sponsored enterprise securities	$	9,587		$	10,079	$	26,440	$	26,877	$	16,244		$	16,533	$	6,239		$	6,635
Mortgage-backed securities:
Agency mortgage-backed securities		416,963			434,264		389,412		390,422		736,287			736,525		601,426			620,989
Non-Agency mortgage-backed securities		—			502		—		618		—			431		—			435
Total available for sale securities		426,550			444,845		415,852		417,917		752,531			753,489		607,665			628,059
Securities held to maturity:
State and political subdivisions		187,401			190,195		192,215		196,018		139,264			143,031		144,506			148,984
Mortgage-backed securities		158,851			164,376		166,785		167,241		116,870			121,298		127,467			133,051
Total held to maturity securities		346,252			354,571		359,000		363,259		256,134			264,329		271,973			282,035
Allowance for credit losses - securities		(13	)								(7	)				(7	)
Total held to maturity securities, net		346,239									256,127					271,966
Total investment securities	$	772,789		$	799,416	$	774,852	$	781,176	$	1,008,658		$	1,017,818	$	879,631		$	910,094

The available for sale (“AFS”) investment securities portfolio increased ~~$26.9~~$125.4 million from ~~$417.9~~$628.1 million at December 31, ~~2019~~2020 to ~~$444.8~~$753.5 million at March 31, ~~2020.~~2021. The increase from year-end 2020 was primarily due to the deployment of excess liquidity into cash flowing agency backed securities. The AFS portfolio had net unrealized gains of ~~$18.3 million~~$958 thousand and ~~$2.1~~$20.4 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.

The following table sets forth certain information regarding the amortized cost (“Cost”), weighted average yields (“Yield”) and contractual maturities of our debt securities portfolio as of March 31, ~~2020.~~2021. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Actual maturities may differ from the contractual maturities presented because borrowers may have the right to call or prepay certain investments. No tax-equivalent adjustments were made to the weighted average yields (dollars in thousands).

	Due in one year or less					Due from one to five years					Due after five years through ten years					Due after ten years					Total					Due in one year or less					Due from one to five years					Due after five years through ten years					Due after ten years					Total
	Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield
Available for sale debt securities:
U.S. Government agencies and government-sponsored enterprises	$	—		—	%	$	9,587		2.42	%	$	—		—	%	$	—		—	%	$	9,587		2.42	%	$	—		—	%	$	6,244		2.42	%	$	—		—	%	$	10,000		—	%	$	16,244		2.42	%
Mortgage-backed securities		—		—			39,879		2.44			160,496		2.46			216,588		2.42			416,963		2.44			4,887		2.23			51,218		2.54			148,739		2.07			531,443		1.48			736,287		1.68
		—		—			49,466		2.43			160,496		2.46			216,588		2.42			426,550		2.44			4,887		—			57,462		2.53			148,739		2.07			541,443		1.48			752,531		1.68
Held to maturity debt securities:
State and political subdivisions		54,240		2.32			118,943		2.00			14,218		1.93			—		—			187,401		2.09			46,389		2.22			90,591		1.91			2,284		1.99			—		—			139,264		2.01
Mortgage-backed securities		—		—			2,500		2.27			17,990		2.18			138,361		2.48			158,851		2.44			—		—			2,312		2.29			17,968		2.11			96,590		2.36			116,870		2.32
		54,240		2.32			121,443		2.01			32,208		2.07			138,361		2.62			346,252		2.25			46,389		2.22			92,903		1.92			20,252		2.09			96,590		2.36			256,134		2.16
Total investment securities	$	54,240		2.32	%	$	170,909		2.37	%	$	192,704		2.40	%	$	354,949		2.50	%	$	772,802		2.39	%	$	51,276		2.22	%	$	150,365		2.15	%	$	168,991		2.07	%	$	638,033		1.62	%	$	1,008,665		1.80	%

flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. For the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 no allowance for credit losses has been recognized on AFS securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality.

The following table summarizes the composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, as of the dates indicated (in thousands).

	Loan Portfolio Composition										Loan Portfolio Composition
	March 31, 2020					December 31, 2019					March 31, 2021					December 31, 2020
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Commercial business	$	588,868		18.2	%	$	572,040		17.8	%	$	816,936		22.4	%	$	794,148		22.1	%
Commercial mortgage		1,107,376		34.1			1,106,283		34.3			1,276,841		34.9			1,253,901		34.9
Total commercial		1,696,244		52.3			1,678,323		52.1			2,093,777		57.3			2,048,049		57.0
Residential real estate loans		579,800		17.9			572,350		17.8			601,609		16.5			599,800		16.7
Residential real estate lines		102,113		3.2			104,118		3.2			85,362		2.3			89,805		2.5
Consumer indirect		843,668		26.1			850,052		26.4			857,804		23.5			840,421		23.4
Other consumer		15,402		0.5			16,144		0.5			15,834		0.4			17,063		0.4
Total consumer		1,540,983		47.7			1,542,664		47.9			1,560,609		42.7			1,547,089		43.0
Total loans		3,237,227		100.0	%		3,220,987		100.0	%		3,654,386		100.0	%		3,595,138		100.0	%
Less: Allowance for credit losses		43,356					30,482
Less: Allowance for credit losses – loans												49,828					52,420
Total loans, net	$	3,193,871				$	3,190,505				$	3,604,558				$	3,542,718

Total loans increased ~~$16.2~~$59.2 million to ~~$3.24~~$3.65 billion at March 31, ~~2020~~2021 from ~~$3.22~~$3.60 billion at December 31, ~~2019.~~2020. The increase in loans was primarily attributable to our organic growth initiatives.

Commercial loans increased ~~$17.9~~$45.7 million during the three months ended March 31, ~~2020~~2021 and represented ~~52.3%~~57.3% of total loans as of March 31, ~~2020 as~~2021. The increase was primarily a result of our continued commercial business development efforts. PPP loans, net of deferred fees were $255.6 million and $248.0 million at March 31, 2021 and December 31, 2020, respectively, and are included in our commercial business loans.

The consumer indirect portfolio totaled ~~$843.7~~$857.8 million and represented ~~26.1%~~23.5% of total loans as of March 31, ~~2020.~~2021. During the first three months of 2021, we originated $98.9 million in indirect auto loans with a mix of approximately 28% new auto and 72% used auto. During the first three months of 2020, we originated $80.3 million in indirect auto loans with a mix of approximately 31% new auto and 69% used auto. ~~During the first three months of 2019, we originated $76.1 million in indirect auto loans with a mix of approximately 32% new auto and 68% used auto.~~ Our origination volumes and mix of new and used vehicles financed fluctuate depending on general market conditions.

Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled ~~$3.8~~$5.7 million and ~~$4.2~~$4.3 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

We sell certain qualifying newly originated or refinanced residential real estate loans on the secondary market. Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to ~~$192.5~~$246.6 million and ~~$189.8~~$241.7 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The following table summarizes the activity in the allowance for credit losses - loans for the periods indicated (in thousands).

	Credit Loss Analysis - Loans						Loan Loss Analysis
	Three months ended March 31,						Three months ended March 31,
	2020			2019			2021			2020
Allowance for credit losses - loans, beginning of period, prior to adoption of ASC 326	$	30,482		$	33,914					$	30,482
Impact of adopting ASC 326		9,594			—						9,594
Allowance for credit losses - loans, beginning of period, after adoption of ASC 326		40,076			33,914		$	52,420			40,076
Charge-offs:
Commercial business		8,241			130			86			8,241
Commercial mortgage		—			—			203			—
Residential real estate loans		98			31			11			98
Residential real estate lines		—			—			70			—
Consumer indirect		3,424			2,982			2,413			3,424
Other consumer		269			309			81			269
Total charge-offs		12,032			3,452			2,864			12,032
Recoveries:
Commercial business		58			103			238			58
Commercial mortgage		—			17			—			—
Residential real estate loans		10			6			5			10
Residential real estate lines		3			2			—			3
Consumer indirect		1,668			1,424			1,670			1,668
Other consumer		150			120			64			150
Total recoveries		1,889			1,672			1,977			1,889
Net charge-offs		10,143			1,780			887			10,143
Provision for credit losses - loans		13,423			1,193
Provision (benefit) for credit losses - loans								(1,705	)		13,423
Allowance for credit losses - loans, end of period	$	43,356		$	33,327		$	49,828		$	43,356

Net loan charge-offs to average loans (annualized)		1.27	%		0.23	%		0.10	%		1.27	%
Allowance for credit losses - loans to total loans		1.34	%		1.07	%		1.36	%		1.34	%
Allowance for credit losses - loans to non-performing loans		350	%		574	%		514	%		350	%

The Company adopted CECL effective January 1, 2020, which resulted in an increase to the allowance for credit losses - loans of $9.6 million and established a reserve for unfunded commitments of $2.1 million, for a total pre-tax cumulative effect adjustment of $11.7 million.

The allowance for credit losses for Pooled Loans estimate is based upon periodic review of the collectability of the loans quantitatively correlating historical loan experience with reasonable and supportable forecasts using forward looking information. Adjustments to the quantitative evaluation may be made for differences in current or expected qualitative risk characteristics such as changes in: underwriting standards, delinquency level, regulatory environment, economic condition, Company management and the status of portfolio administration including the Company’s Loan Review function. The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans, troubled debt restructurings (“TDRs”), and other loans deemed appropriate by management.

Assessing the adequacy of the allowance for credit losses - loans involves substantial uncertainties and is based upon management’s evaluation of the amounts required to meet estimated charge-offs in the loan portfolio after weighing a variety of factors, including the risk profile of our loan products and customers.

The adequacy of the allowance for credit losses - loans is subject to ongoing management review. While management evaluates currently available information in establishing the allowance for credit losses - loans, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution’s allowance for credit losses - loans. Such agencies may require the financial institution to increase the allowance based on their judgments about information available to them at the time of their examination.

Net charge-offs of ~~$10.1 million~~$887 thousand in the first quarter of ~~2020~~2021 represented ~~1.27%~~0.10% of average loans on an annualized basis compared to ~~$1.8~~$10.1 million, or ~~0.23%~~1.27%, in the first quarter of ~~2019.~~2020. The ~~increase~~decrease in net charge-offs in the three months ended March 31, ~~2020 is~~2021 was primarily due to an $8.2 million partial charge-off of an $11.9 million commercial loan downgraded in the first quarter of 2020. The borrower’s business was related to the hospitality industry and the downgrade and charge-off were precipitated by the impact of ~~COVID-19.~~the COVID-19 pandemic. The allowance for credit losses - loans was ~~$43.4~~$49.8 million at March 31, ~~2020,~~2021, compared with ~~$30.5~~$52.4 million at December 31, ~~2019.~~2020. The ratio of the allowance for credit losses -loans to total loans was ~~1.34%~~1.36% and ~~0.95%~~1.46% at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The ratio of allowance for credit losses - loans to non-performing loans was ~~350%~~514% at March 31, ~~2020,~~2021, compared with ~~353%~~551% at December 31, ~~2019.~~2020.

The table below summarizes our non-performing assets at the dates indicated (in thousands).

	Non-Performing Assets						Non-Performing Assets
	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Nonaccrual loans:
Commercial business	$	5,507		$	1,177		$	1,742		$	1,975
Commercial mortgage		2,984			3,146			3,402			2,906
Residential real estate loans		1,971			2,484			2,519			2,587
Residential real estate lines		143			102			256			323
Consumer indirect		1,777			1,725			1,482			1,495
Other consumer		—			—			3			—
Total nonaccrual loans		12,382			8,634			9,404			9,286
Accruing loans 90 days or more delinquent		2			6			284			231
Total non-performing loans		12,384			8,640			9,688			9,517
Foreclosed assets		749			468			2,966			2,966
Total non-performing assets	$	13,133		$	9,108		$	12,654		$	12,483
Non-performing loans to total loans		0.38	%		0.27	%		0.27	%		0.26	%
Non-performing assets to total assets		0.29	%		0.21	%		0.24	%		0.25	%

Non-performing assets include non-performing loans and foreclosed assets. Non-performing assets at March 31, ~~2020~~2021 were ~~$13.1~~$12.7 million, an increase of ~~$4.0 million~~$171 thousand from the ~~$9.1~~$12.5 million balance at December 31, ~~2019.~~2020. The primary component of non-performing assets is non-performing loans, which were ~~$12.4 million or 0.38% of total loans at March 31, 2020, compared with $8.6~~$9.7 million or 0.27% of total loans at March 31, 2021, compared with $9.5 million or 0.26% of total loans at December 31, 2019. The increase in non-performing loans in the three months ended March 31, 2020 is primarily due to an $11.9 million commercial loan downgraded, with $8.2 million charged-off, in the first quarter of 2020. ~~The borrower’s business was related to the hospitality industry and the downgrade and charge-off were precipitated by the impact of COVID-19.~~

Approximately ~~$5.3~~$2.6 million, or ~~43%~~27%, of the ~~$12.4~~$9.7 million in non-performing loans as of March 31, ~~2020~~2021 were current with respect to payment of principal and interest but were classified as non-accruing because repayment in full of principal and/or interest was uncertain. Included in nonaccrual loans are TDRs of ~~$4.5 million~~$0 and ~~$297~~$200 thousand at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. There were no TDRs accruing interest as of March 31, ~~2020~~2021 and ~~one TDR of $550 thousand was accruing interest as of~~ December 31, ~~2019.~~2020.

Foreclosed assets consist of real property formerly pledged as collateral for loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed asset holdings represented ~~one property~~two properties totaling ~~$749 thousand~~$3.0 million at March 31, 2021 and December 31, 2020. Foreclosed assets in the three months ended March 31, 2021 and December 31, 2020 primarily includes one commercial credit that was partially charged off during the first quarter of 2020 and ~~three properties totaling $468 thousand at December 31, 2019.~~foreclosure occurred in the third quarter of 2020. The borrower’s business was related to the hospitality industry and the downgrade and charge-off were precipitated by the impact of the COVID-19 pandemic.

Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes us to have concern as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and/or personal or government guarantees. We consider loans classified as substandard, which continue to accrue interest, to be potential problem loans. We identified ~~$11.9~~$20.4 million and ~~$14.6~~$17.9 million in loans that continued to accrue interest which were classified as substandard as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The following table summarizes the composition of our deposits at the dates indicated (dollars in thousands):

	Deposit Composition										Deposit Composition
	March 31, 2020					December 31, 2019					March 31, 2021					December 31, 2020
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Noninterest-bearing demand	$	732,917		19.4	%	$	707,752		19.9	%	$	1,099,608		23.3	%	$	1,018,549		23.8	%
Interest-bearing demand		724,670		19.1			627,842		17.7			873,390		18.5			731,885		17.1
Savings and money market		1,270,253		33.5			1,039,892		29.2			1,826,621		38.8			1,642,340		38.4
Time deposits < $250,000		790,393		20.9			893,177		25.1			713,884		15.1			684,885		16.0
Time deposits of $250,000 or more		268,952		7.1			287,012		8.1			202,511		4.3			200,708		4.7
Total deposits	$	3,787,185		100.0	%	$	3,555,675		100.0	%	$	4,716,014		100.0	%	$	4,278,367		100.0	%

We offer a variety of deposit products designed to attract and retain customers, with the primary focus on building and expanding long-term relationships. At March 31, ~~2020,~~2021, total deposits were ~~$3.79~~$4.72 billion, representing an increase of ~~$231.5~~$437.6 million from December 31, ~~2019.~~2020. The increase was driven by a seasonal increase in public deposits combined with growth in the nonpublic deposits and the reciprocal deposits portfolios. Time deposits were approximately ~~28%~~19% and ~~33%~~21% of total deposits at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Nonpublic deposits, the largest component of our funding sources, totaled ~~$2.17~~$2.65 billion and ~~$2.16~~$2.55 billion at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and represented ~~57%~~56% and ~~61%~~60% of total deposits as of the end of each period, respectively. We have managed this segment of funding through a strategy of competitive pricing that minimizes the number of customer relationships that have only a single service high cost deposit account.

As an additional source of funding, we offer a variety of public (municipal) deposit products to the towns, villages, counties and school districts within our market. Public deposits generally range from 20% to 30% of our total deposits. There is a high degree of seasonality in this component of funding, because the level of deposits varies with the seasonal cash flows for these public customers. We maintain the necessary levels of short-term liquid assets to accommodate the seasonality associated with public deposits. Total public deposits were ~~$1.04~~$1.13 billion and ~~$860.7~~$834.9 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and represented ~~27%~~24% and ~~24%~~20% of total deposits as of the end of each period, respectively. The increase in public deposits during ~~2020~~2021 was due largely to ~~seasonality and successful business development efforts.~~seasonality.

We also participate in reciprocal deposit programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Prior to the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”) enacted on May 14, 2018, all reciprocal deposits were considered brokered deposits for regulatory reporting purposes. With the enactment of EGRRCPA, reciprocal deposits, subject to certain restrictions, are no longer required to be reported as brokered deposits. Reciprocal deposits totaled ~~$208.6~~$709.4 million ~~and $186.7 million, respectively,~~ at March 31, ~~2020,~~2021, compared to ~~$157.9~~$612.3 million ~~and $172.0 million, respectively,~~ at December 31, ~~2019.~~2020. Reciprocal deposits represented ~~10%~~15% and 9%14% of total deposits as of the end of each period, respectively.

Brokered deposits totaled ~~$185.5~~$228.7 million and ~~$208.8~~$279.6 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and represented 5% and 6%7% of total deposits as of the end of each period, respectively.

The Company classifies borrowings as short-term or long-term in accordance with the original terms of the applicable agreement. Outstanding borrowings consisted of the following as of the dates indicated (in thousands):

	March 31,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
Short-term borrowings - FHLB	$	109,500	$	275,500	$	-	$	5,300
Long-term borrowings - Subordinated notes, net		39,291		39,273		73,679		73,623
Total borrowings	$	148,791	$	314,773	$	73,679	$	78,923

Short-term Federal Home Loan Bank (“FHLB”) borrowings have original maturities of less than one year and include overnight borrowings which we typically utilize to address short term funding needs as they arise. ~~Short-term~~We had no short-term FHLB borrowings at March 31, ~~2020 consisted of $109.5 million in short-term borrowings.~~2021. The maximum amount of short-term FHLB borrowings outstanding at any month-end during the three months ended March 31, ~~2020~~2021 was ~~$198.9~~$1.2 million. Short-term FHLB borrowings at December 31, ~~2019~~2020 consisted of ~~$10.0 million in overnight borrowings and $265.5~~$5.3 million in short-term borrowings. The decline in short-term borrowings at March 31, 2021, was the result of the Company’s decision to utilize brokered deposits as a cost-effective alternative to FHLB borrowings. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately ~~$50.6~~$267.8 million of immediate credit capacity with the FHLB as of March 31, ~~2020.~~2021. We had approximately ~~$639.9~~$558.6 million in secured borrowing capacity at the Federal Reserve Bank (“FRB”) discount window, none of which was outstanding at March 31, ~~2020.~~2021. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had approximately ~~$145.0~~$130.0 million of credit available under unsecured federal funds purchased lines with various banks as of March 31, ~~2020~~2021 and December 31, ~~2019.~~2020. Additionally, we had approximately ~~$131.9~~$224.5 million of unencumbered liquid securities available for pledging.

The Parent has a revolving line of credit with a commercial bank allowing borrowings up to $20.0 million in total as an additional source of working capital. At March 31, ~~2020,~~2021, no amounts have been drawn on the line of credit.

On October 7, 2020, we completed a private placement of $35.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes to qualified institutional buyers and accredited institutional investors that were subsequently exchanged for subordinated notes with substantially the same terms (the “2020 Notes”) registered under the Securities Act of 1933, as amended. The 2020 Notes have a maturity date of October 15, 2030 and bear interest, payable semi-annually, at the rate of 4.375% per annum, until October 15, 2025. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 4.265%, payable quarterly until maturity. The 2020 Notes are redeemable by us, in whole or in part, on any interest payment date on or after October 15, 2025, and we may redeem the Notes in whole at any time upon certain other specified events. We used the net proceeds for general corporate purposes, organic growth and to support regulatory capital ratios at Five Star Bank.

On April 15, 2015, we issued $40.0 million of ~~Subordinated Notes~~subordinated notes (the “2015 Notes”) in a registered public offering. The ~~Subordinated~~2015 Notes bear interest at a fixed rate of 6.0% per year, payable semi-annually, for the first 10 years. From April 15, 2025 to the April 15, 2030 maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month London Interbank Offered Rate ~~(LIBOR)~~(“LIBOR”) plus 3.944%, payable quarterly. After the discontinuance of LIBOR, the interest rate will be determined by an alternate method as reasonably selected by the Company. The ~~Subordinated~~2015 Notes are redeemable by us at any quarterly interest payment date beginning on April 15, 2025 to maturity at par, plus accrued and unpaid interest. Proceeds, net of debt issuance costs of $1.1 million, were $38.9 million. The ~~Subordinated~~2015 Notes qualify as Tier 2 capital for regulatory purposes.

We continue to actively monitor our liquidity profile and funding concentrations in accordance with our Board approved Liquidity Policy. While funding pressures have not occurred, management is actively monitoring customer activity by way of commercial and consumer line of credit utilization, as well as deposit flows. As of March 31, ~~2020,~~2021, all structural liquidity ratios and early warning indicators remain in compliance, with what we believe are ample funding sources available in the event of a stress scenario.

The objective of maintaining adequate liquidity is to assure that we meet our financial obligations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of matured borrowings, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. We achieve liquidity by maintaining a strong base of both core customer funds and maturing short-term assets; we also rely on our ability to sell or pledge securities and lines-of-credit and our overall ability to access to the financial and capital markets.

Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the investment portfolio, deposits and wholesale funds. The strength of the Bank’s liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources that include credit lines with other banking institutions, the FHLB, the FRB and ~~the FRB.~~brokered deposit relationships. The primary source of our non-deposit short-term borrowings is FHLB advances, of which we had ~~$109.5~~$0 million outstanding at March 31, ~~2020.~~2021 due to the excess liquidity position resulting from the seasonal inflow of public deposits. In addition to this amount, we have additional collateralized wholesale borrowing capacity of approximately ~~$912.0~~$956.4 million from various funding sources which include the FHLB, the FRB and commercial banks that we can use to fund lending activities, liquidity needs, and/or to adjust and manage our asset and liability position.

The Parent’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of non-bank subsidiaries, repurchases of our stock, and acquisitions. The Parent obtains funding to meet obligations from dividends received from the Bank, net taxes collected from subsidiaries included in the federal consolidated tax return, and the issuance of debt and equity securities. In addition, the Parent maintains a revolving line of credit with a commercial bank for an aggregate amount of up to $20.0 million, all of which was available at March 31, ~~2020.~~2021. The line of credit has a one-year term and matures in May ~~2020.~~2021. Funds drawn would be used for general corporate purposes and backup liquidity.

Cash and cash equivalents were ~~$152.2~~$334.8 million as of March 31, ~~2020,~~2021, up ~~$39.2~~$250.9 million from ~~$112.9~~$93.9 million as of December 31, ~~2019.~~2020. Net cash provided by operating activities totaled ~~$4.3~~$20.3 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash used in investing activities totaled ~~$26.0~~$191.2 million, which included outflows of ~~$27.0~~$60.1 million for net loan originations, and ~~was partially offset by inflows of $1.8~~$130.1 million from net investment securities transactions. Net cash provided by financing activities of ~~$60.9~~$421.8 million was attributed to a ~~$231.5~~$437.6 million increase in deposits, partially offset by a ~~$166.0~~$5.3 million decrease in short-term borrowings and by ~~$4.4~~$4.5 million in dividend payments. The increase in the period end cash balance was due to the seasonal inflow of public deposits, coupled with increases in reciprocal balances, which occurred during the latter half of March.

We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company and the Bank at amounts in excess of the regulatory “well-capitalized” thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.

Banks and financial holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material impact on our consolidated financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

Shareholders’ equity was ~~$439.4~~$466.3 million at March 31, ~~2020, an increase~~2021, a decrease of ~~$446 thousand~~$2.1 million from ~~$438.9~~$468.4 million at December 31, ~~2019.~~2020. Net income for the three months ended March 31, ~~2020~~2021 increased shareholders’ equity by ~~$1.1~~$20.7 million, offset by ~~an $8.7 million cumulative effect adjustment from the adoption of ASC 326 and~~ common and preferred stock dividends declared of ~~$4.5~~$4.6 million. Accumulated other comprehensive loss included in shareholders’ equity increased ~~$12.4~~$5.2 million during the first three months of ~~2020~~2021 due primarily to ~~higher~~lower net unrealized gains on securities available for sale.

The FRB and FDIC have adopted a system using risk-based capital guidelines to evaluate the capital adequacy of banks and bank holding companies. ~~The final rules implementing~~As of March 31, 2021, the Company’s capital levels remained characterized as “well-capitalized” under the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks became effective for the Company on January 1, 2015 and was fully phased-in on January 1, 2019. As of March 31, 2020, the Company’s capital levels remained characterized as “well-capitalized” under the new rules.banks.

The following table reflects the ratios and their components (dollars in thousands):

	March 31,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
Common shareholders’ equity	$	422,065		$	421,619		$	448,962		$	451,035
Add: CECL transitional amount		9,662			—			11,344			12,061
Less: Goodwill and other intangible assets		71,687			71,987			71,957			71,235
Net unrealized gain (loss) on investment securities ⁽¹⁾		12,979			873			341			14,743
Hedging derivative instruments		(427	)		(518	)		1,248			(316	)
Net periodic pension and postretirement benefits plan adjustments		(14,634	)		(14,868	)		(12,161	)		(12,299	)
Other		—			—			—			—
Common Equity Tier 1 (“CET1”) Capital		362,122			364,145			398,921			389,733
Plus: Preferred stock		17,328			17,328			17,322			17,328
Less: Other		—			—			—			—
Tier 1 Capital		379,450			381,473			416,243			407,061
Plus: Qualifying allowance for credit losses		33,310			30,482			38,359			40,509
Subordinated Notes		39,291			39,273			73,679			73,623
Total regulatory capital	$	452,051		$	451,228		$	528,281		$	521,193
Adjusted average total assets (for leverage capital purposes)	$	4,321,529		$	4,237,596		$	4,985,535		$	4,933,597
Total risk-weighted assets	$	3,603,894		$	3,533,281		$	3,904,748		$	3,828,713
Regulatory Capital Ratios
Tier 1 Leverage (Tier 1 capital to adjusted average assets)		8.78	%		9.00	%		8.35	%		8.25	%
CET1 Capital (CET1 capital to total risk-weighted assets)		10.05			10.31			10.22			10.18
Tier 1 Capital (Tier 1 capital to total risk-weighted assets)		10.53			10.80			10.66			10.63
Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets)		12.54			12.77			13.53			13.61

We have elected to apply the 2020 CECL transition provision related to the impact of the CECL accounting standard on regulatory capital, as provided by the US banking agencies’ March 2020 interim final rule. Under the 2020 CECL transition provision, the regulatory capital impact of the Day 1 adjustment to the allowance for credit losses (after-tax) upon the January 1, 2020 CECL adoption date has been deferred, and will phase in to regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, we are allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020, and December 31, 2021. The cumulative adjustment to the allowance for credit losses between January 1, 2020, and December 31, 2021, will also phase in to regulatory capital at 25% per year commencing January 1, 2022.

~~The BCBS~~Under the Basel III Capital Rules, ~~include a new common equity Tier 1~~the current minimum capital to risk-weighted assets minimum ratio of 4.5%, increase the minimum Tier 1 capital to risk-weighted assets ratio from 4.0% to 6.0%, require a minimum total capital to risk-weighted assets ratio of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A newratios, including an additional capital conservation buffer ~~is also established above~~applicable to the ~~regulatory minimum capital requirements, effectively increasing~~Company and the ~~minimum required risk-weighted asset ratios. This capital conservation buffer was fully phased-in as of January 1, 2019 at 2.5% of risk-weighted assets.~~ Bank, are:

Banking institutions with a capital conservation buffer below the minimum level will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The ~~BCBS~~Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. Strict eligibility criteria for regulatory capital instruments were also implemented under the ~~final rules. The final rules also revised the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets.~~Basel III Capital Rules.

The following table presents actual and required capital ratios as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 for the Company and the Bank under the ~~BCBS~~Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of those dates based on the phase-in provisions of the BCBS Capital Rules and the minimum required capital levels as of January 1, 2019 when the BCBS Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, ~~as amended to reflect the changes~~ under the ~~BCBS~~Basel III Capital Rules (in thousands):

											Required to be															Required to be
						Minimum Capital					Considered Well										Minimum Capital					Considered Well
	Actual					Required – Basel III					Capitalized					Actual					Required – Basel III					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2020
March 31, 2021
Tier 1 leverage:
Company	$	379,450		8.78	%	$	172,861		4.00	%	$	216,076		5.00	%	$	416,243		8.35	%	$	199,421		4.00	%	$	249,277		5.00	%
Bank		402,099		9.32			172,557		4.00			215,696		5.00			456,775		9.18			199,139		4.00			248,923		5.00
CET1 capital:
Company		362,122		10.05			252,273		7.00			234,253		6.50			398,921		10.22			273,332		7.00			253,809		6.50
Bank		402,099		11.18			251,716		7.00			233,737		6.50			456,775		11.72			272,713		7.00			253,234		6.50
Tier 1 capital:
Company		379,450		10.53			306,331		8.50			288,312		8.00			416,243		10.66			331,904		8.50			312,380		8.00
Bank		402,099		11.18			305,656		8.50			287,676		8.00			456,775		11.72			331,152		8.50			311,672		8.00
Total capital:
Company		452,051		12.54			378,409		10.50			360,389		10.00			528,281		13.53			409,999		10.50			390,475		10.00
Bank		435,410		12.11			377,575		10.50			359,595		10.00			495,133		12.71			409,070		10.50			389,591		10.00
December 31, 2019
December 31, 2020
Tier 1 leverage:
Company	$	381,473		9.00	%	$	169,504		4.00	%	$	211,880		5.00	%	$	407,061		8.25	%	$	197,344		4.00	%	$	246,680		5.00	%
Bank		409,031		9.67			169,189		4.00			211,486		5.00			441,929		8.97			197,064		4.00			246,330		5.00
CET1 capital:
Company		364,145		10.31			247,330		7.00			229,663		6.50			389,733		10.18			268,010		7.00			248,866		6.50
Bank		409,031		11.61			246,674		7.00			229,055		6.50			441,929		11.57			267,387		7.00			248,288		6.50
Tier 1 capital:
Company		381,473		10.80			300,329		8.50			282,663		8.00			407,061		10.63			325,441		8.50			306,297		8.00
Bank		409,031		11.61			299,533		8.50			281,914		8.00			441,929		11.57			324,684		8.50			305,585		8.00
Total capital:
Company		451,228		12.77			370,995		10.50			353,328		10.00			521,193		13.61			402,015		10.50			382,871		10.00
Bank		439,514		12.47			370,011		10.50			352,392		10.00			482,439		12.63			401,080		10.50			381,981		10.00

In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.

ITEM 3. Quantitative and ~~Qualitative~~Qualitative Disclosures About Market Risk

Market risk refers to the potential impact on earnings or capital arising from movements in interest rates. The Bank’s market risk management framework has been developed to control both short-term and long-term exposure within Board approved policy limits and is monitored by the Asset-Liability Management Committee and Board of Directors. Quantitative and qualitative disclosures about market risk were presented at December 31, ~~2019~~2020 in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission on March ~~4, 2020.~~15, 2021. The following is an update of the discussion provided therein.

There was no material change in the composition of assets, deposit liabilities or borrowings from December 31, ~~2019~~2020 to March 31, ~~2020.~~2021, aside from asset growth due to an increased liquidity position. The increased liquidity position resulted from continued deposit growth and drove investment security purchases and an excess Federal Reserve interest earning cash balance at quarter end. See the section titled “Analysis of Financial Condition” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of asset, deposit and borrowing activity during the period.

A primary tool used to manage interest rate risk is “rate shock” simulation to measure the rate sensitivity. Rate shock simulation is a modeling technique used to estimate the impact of changes in rates on net interest income as well as economic value of equity.

Net interest income at risk is measured by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of different magnitudes over a period of 12 months. The following table sets forth the estimated changes to net interest income over the 12-month period ending March 31, ~~2021~~2022 assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

	Changes in Interest Rate												Changes in Interest Rate
	-100 bp			+100 bp			+200 bp			+300 bp			-100 bp			+100 bp			+200 bp			+300 bp
Estimated change in net interest income	$	(495	)	$	(1,389	)	$	(2,236	)	$	(2,366	)	$	(2,402	)	$	4,809		$	9,356		$	13,798
% Change		(0.37	)%		(1.04	)%		(1.68	)%		(1.78	)%		-1.69	%		3.39	%		6.60	%		9.73	%

In the rising rate ~~environments,~~scenarios, the model results indicate ~~decreases in~~that net interest income is modeled to increase compared to the flat rate scenario over a one-year timeframe. This is a result of assumed ~~short term~~commercial loan products and investment security cash flow repricing at a higher frequency than underlying borrowing and deposit ~~and borrowing costs increasing faster than anticipated repricing of assets. However, as~~costs. As intermediate and longer-term assets continue to mature and are replaced at higher yields, net interest income improves over longer term timeframes. Model results in the declining rate ~~environments also~~scenario indicate decreases in net interest income asdue to assets ~~are repricing~~having the ability to reprice downward, ~~at a greater magnitude than~~while deposit and borrowing liabilities ~~over the one-year timeframe.~~reach modeled floors.

In addition to the changes in interest rate scenarios listed above, other scenarios are typically modeled to measure interest rate risk. These scenarios vary depending on the economic and interest rate environment.

The simulation referenced above is based on our assumption as to the effect of interest rate changes on assets and liabilities and assumes a parallel shift of the yield curve. It also includes certain assumptions about the future pricing of loans and deposits in response to changes in interest rates. Further, it assumes that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this will be the case. While this simulation is a useful measure as to net interest income at risk due to a change in interest rates, it is not a forecast of future results, does not measure the effect of changing interest rates on noninterest income and is based on many assumptions that, if changed, could cause a different outcome.

The economic (or “fair”) value of financial instruments on our balance sheet will also vary under the interest rate scenarios previously discussed. This variance is measured by simulating changes in our economic value of equity (“EVE”), which is calculated by subtracting the estimated fair value of liabilities from the estimated fair value of assets. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at current replacement rates for each account type, while fair values of non-financial assets and liabilities are assumed to equal book value and do not vary with interest rate fluctuations. An economic value simulation is a static measure for balance sheet accounts at a given point in time, but this measurement can change substantially over time as the characteristics of our balance sheet evolve and as interest rate and yield curve assumptions are updated.

The amount of change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including the stated interest rate or spread relative to current market rates or spreads, the likelihood of prepayment, whether the rate is fixed or floating, and the maturity date of the instrument. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical data (back-testing).

The analysis that follows presents the estimated EVE resulting from market interest rates prevailing at a given quarter-end (“Pre-Shock Scenario”), and under other interest rate scenarios (each a “Rate Shock Scenario”) represented by immediate, permanent, parallel shifts in interest rates from those observed at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 (dollars in thousands). The analysis additionally presents a measurement of the interest rate sensitivity at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020. EVE amounts are computed under each respective Pre-Shock Scenario and Rate Shock Scenario. An increase in the EVE amount is considered favorable, while a decline is considered unfavorable. The following table sets forth the estimated changes to EVE assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

	March 31, 2020								December 31, 2019								March 31, 2021								December 31, 2020
Rate Shock Scenario:	EVE		Change			Percentage Change			EVE		Change			Percentage Change			EVE		Change			Percentage Change			EVE		Change			Percentage Change
Pre-Shock Scenario	$	589,978							$	632,832							$	729,995							$	583,156
- 100 Basis Points		506,215	$	(83,763	)		-14.20	%		676,362	$	43,530			6.88	%		667,398	$	(62,597	)		-8.57	%		574,345	$	(8,811	)		-1.51	%
+100 Basis Points		615,491		25,513			4.32			627,409		(5,423	)		(0.86	)		756,713		26,718			3.66			617,768		34,612			5.94
+ 200 Basis Points		631,311		41,333			7.01			614,927		(17,905	)		(2.83	)		781,359		51,364			7.04			638,224		55,068			9.44
+ 300 Basis Points		633,687		43,709			7.41			600,636		(32,196	)		(5.09	)		798,478		68,483			9.38			651,518		68,362			11.72

The ~~decrease~~increase in the Pre-Shock Scenario EVE at March 31, ~~2020~~2021 compared to December 31, ~~2019 resulted from a seasonal shift~~2020 is the result of growth in ~~the deposit base into a higher balance of public funds, which drives a lower valuation.~~investments. The ~~decrease~~increase in the -100 basis point Rate Shock Scenario to EVE is ~~reflective~~a result of the ~~assumption that deposit pricing is nearly floored and has~~growth in deposits over the ~~inability to reprice to a lower level. This is~~last quarter, compounded bywith the ~~assumption that the discount curve on the~~growth of fixed rate ~~portfolio is nearly floored, resulting~~long-term assets not receiving the full benefit in ~~less premium on the portfolio~~value appreciation typically observed in ~~a falling~~down rate environment. The high level of overall change on a linked quarter basis is largely reflective of the Federal Open Market Committee action to reduce the Federal Funds target rate by 150 basis points within the period.scenarios.

As of March 31, ~~2020,~~2021, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~The Company has experienced no material developments~~From time to time we are a party to or otherwise involved in ~~its~~ legal proceedings ~~from~~arising out of the ~~disclosure included~~normal course of business. Regardless of the outcome, litigation can have an adverse impact on us because of prosecution, defense and settlement costs, unfavorable awards, diversion of management resources and other factors.

We are party to an action filed against us on May 16, 2017 by Matthew L. Chipego, Charlene Mowry, Constance C. Churchill and Joseph W. Ewing in the ~~Company’s Annual Report on Form 10-K~~Court of Common Pleas in Philadelphia, Pennsylvania. Plaintiffs seek class certification to represent classes of consumers in New York and Pennsylvania along with statutory damages, interest and declaratory relief. The plaintiffs seek to represent a putative class of consumers who are alleged to have obtained direct or indirect financing from us for the ~~year ended December 31, 2019, as filed~~purchase of vehicles that we later repossessed. The plaintiffs specifically claim that the notices the Bank sent to defaulting consumers after their vehicles were repossessed did not comply with the ~~SEC on March 4, 2020.~~

~~Except as stated below, there have been no material changes from the risk factors previously disclosed in Part I – Item 1A~~relevant portions of the ~~Company’s Form 10-K~~Uniform Commercial Code in New York and Pennsylvania. We dispute and believe we have meritorious defenses against these claims and plan to vigorously defend ourselves.

~~The ongoing novel coronavirus (“COVID-19”) pandemic, and governmental and individual efforts to contain the pandemic, have had a significant negative impact~~judgment on the ~~U.S.~~pleadings dismissing our affirmative defense against one named New York plaintiff that his claim was time-barred under New York law, applying a six-year statute of limitations rather than the three years limitation period we had argued. The issue of class certification has been briefed and ~~global economy which~~the class certification hearing date has been scheduled for June 14, 2021.

In November 2020, the Company’s Board of Directors authorized a share repurchase program for up to 801,879 shares of common stock. The program will expire at the earlier of the completion of all share repurchases or a Board vote to retire the program.

The Company’s repurchases of its common stock during the first quarter of 2021 were as follows:

On February 1, 2021, the ~~Federal Reserve reduced the federal funds rate in the United States from 1.75% to 0.25%. This change influences the rate~~Company issued 12,831 shares of ~~interest we earn on loans and pay on borrowings and interest-bearing deposits, and can affect the~~common stock at a fair value of ~~financial instruments we hold. In an environment~~$23.49 per share to the principals of Landmark in connection with ~~lower interest rates, we will not be able to earn as much on our interest-earning~~the Company’s acquisition of assets ~~which will likely reduce net interest margin. In addition, our ability to earn interest and receive dividend income~~ from ~~investment securities will be reduced. If interest rates remain low~~Landmark. The shares were issued in reliance upon the exemption under Section 4(a)(2) of the Securities Act. See Note 2 – Business Combinations for ~~an extended period of time, our results of operations could be materially adversely affected.~~additional information.

The U.S. economy generally and our customers and employees in particular are directly impacted by prevalent “stay at home” and social distancing efforts in place in the State of New York that have reduced travel and in-person interactions. In response to executive orders from the Governor of the State of New York, during the week of March 16, 2020, we took necessary steps to protect the health and safety of our associates, customers and communities by maximizing social distancing and implementing a work-from-home policy for many associates. Bank branch locations were also limited to drive-thru windows wherever possible, while we continue to provide essential services for our communities and their banking and financial needs. In addition, we have waived certain transaction fees for our customers during this time, including overdraft and late fees, and are providing payment relief opportunities for mortgage and home equity borrowers. Temporarily eliminating these fees and providing payment relief to customers will have a negative impact on our results of operations in the short term. A majority of our employees are working remotely, which may slow response times to customers’ inquiries or preclude providing the level of service our employees are typically able to offer in person. Our reputation and results of operations may be impacted if our competitors are better able to adjust to the restrictions on in-person interactions and remote work.

While we have experienced higher loan origination volume due to the Paycheck Protection Program under the CARES Act, there can be no assurance that the borrowers under the CARES Act programs will be able to pay the interest, and principal payments, if applicable, when they are due. Even though those loans are guaranteed by the U.S. Small Business Association (the “SBA”), we may not be able to collect from the SBA as quickly as those payments come due, and our cash flow and earnings may be reduced accordingly. Originations for commercial business and mortgage loans, which currently constitute approximately 52.3% of our total loans, and consumer indirect lending, which currently constitutes 26.1% of our total loans, have declined since the outbreak of the COVID-19 pandemic. If this trend continues, our financial condition and results of operations could be materially adversely affected.

Our loan customers will likely be impacted by the overall decline in the U.S. economy, which may cause them to make late or reduced payments on their loans or default on their loans with us. In particular, our commercial mortgage customers may be experiencing higher rates of tenants not paying rent due to the COVID-19 pandemic. As a lender, we are exposed to the risk that customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment, and our credit risk has increased since the start of the COVID-19 pandemic and related decline in the U.S. economy. The longer the economic results of the COVID-19 pandemic negatively impact our customers, the more likely our customers will be to default on their loans with us. If a significant proportion of our customers are unable to repay their loans and the collateral securing repayment is insufficient to cover our losses, we may have to increase our allowance for credit losses - loans, the quality of our loan portfolio will decline and our results of operations will be materially adversely impacted.

At March 31, 2020, we held $187.4 million in debt securities that are issued by state and local government agencies, or municipal bonds, that are backed by the credit and taxing power of the issuing jurisdiction. As these state and local governments experience the impacts of the pandemic and stay at home orders, they are earning less sales tax revenue while incurring higher than expected costs as a result of the COVID-19 pandemic. The impact of the COVID-19 pandemic may cause the credit rating of the municipal bonds we hold to be downgraded, which could in turn cause us to incur credit losses. If these bond issuers are unable to repay us when the bonds mature, we could lose our investment and our results of operations and cash flows could be materially adversely impacted.

The market volatility related to the COVID-19 pandemic has driven market values of publicly traded securities downward. Because the majority of our investment advisory revenue is from fees based on a percentage of assets under management, our investment advisory revenues and profitability have fallen and will continue to fluctuate with the overall market conditions.

Should the COVID-19 pandemic continue for an extended period of time, our business, financial condition, results of operations and cash flows may likewise be materially adversely impacted for an extended period of time.

~~The value of our goodwill and other intangible assets may decline in the future.~~

As of March 31, 2020, we had $66.1 million of goodwill and $8.5 million of other intangible assets. Although we did not record any impairment to our goodwill for the first quarter of 2020, significant and sustained declines in our stock price and market capitalization, significant declines in our expected future cash flows, significant adverse changes in the business climate and slower growth rates, any or all of which could be materially impacted by the ongoing COVID-19 pandemic, may necessitate our taking charges in the future related to the impairment of our goodwill. If the recent capital markets downturn resulting from the COVID-19 pandemic continues for an extended period of time, we may record an impairment to our goodwill in subsequent fiscal periods. Future regulatory actions could also have a material impact on assessments of goodwill for impairment. If the fair value of our net assets improves at a faster rate than the market value of our reporting units, or if we were to experience increases in book values of a reporting unit in excess of the increase in fair value of equity, we may also have to take charges related to the impairment of our goodwill. If we were to conclude that a future write-down of our goodwill is necessary, we would record the appropriate charge, which could have a material adverse effect on our results of operations.

Identifiable intangible assets other than goodwill consist of core deposit intangibles and other intangible assets (primarily customer relationships). Adverse events or circumstances could impact the recoverability of these intangible assets including loss of core deposits, significant losses of customer accounts and/or balances, increased competition or adverse changes in the economy, such as those related to the ongoing COVID-19 pandemic. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded which could have a material adverse effect on our results of operations.

~~For further discussion, see Note 6, Goodwill and Other Intangible Assets, to the Consolidated Financial Statements (Unaudited) included in Item 1 of this Quarterly Report on Form 10-Q.~~

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.

New York		16-0816610
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

220 LIBERTY STREET, WARSAW, New York		14569
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	FISI	Nasdaq Global Select Market

		PAGE
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements

	Consolidated Statements of Financial Condition (Unaudited) - at March 31, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Consolidated Statements of Income (Unaudited) - Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	4

	Consolidated Statements of Comprehensive Income (Unaudited) - Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	5

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	6

	Consolidated Statements of Cash Flows (Unaudited) - Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	8

	Notes to Consolidated Financial Statements (Unaudited)	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4140

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	58

ITEM 4.	Controls and Procedures	59

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	60

ITEM ~~1A.~~2.	~~Risk Factors~~Unregistered Sales of Equity Securities and Use of Proceeds	60

ITEM 6.	Exhibits	61

	Signatures	62

Large accelerated filer	☐	Accelerated filer	☑

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
March 31, 2020
Commercial business		1	$	11,898	$	11,898
Total		1	$	11,898	$	11,898

March 31, 2019
Commercial business		—	$	—	$	—
Total		—	$	—	$	—

	Banking		Non-Banking		Total
Balance, December 31, 2019	$	48,536	$	17,526	$	66,062
No activity during the period		—		—		—
Balance, March 31, 2020	$	48,536	$	17,526	$	66,062

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - 31, 2021		160,060	$	23.98		160,060		641,819
February 1 - 28, 2021		78,379		24.95		78,379		563,440
March 1 -31, 2021		6,238		27.38		—		563,440
Total		244,677	$	24.37		238,439

Exhibit Number	Description	Location

10.1+	Separation and Settlement Agreement and Release between Financial Institutions, Inc. and Joseph L. Dugan dated February 12, 2021	Filed Herewith

10.2+	Form of Performance Stock Unit Award Agreement pursuant to the Financial Institutions, Inc. 2015 Long-Term Incentive Plan	Filed Herewith

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Principal Executive Officer	Filed Herewith

31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Principal Financial Officer	Filed Herewith

32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith

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.

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101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

/s/ Martin K. Birmingham		, May ~~8, 2020~~10, 2021
Martin K. Birmingham
President and Chief Executive Officer
(Principal Executive Officer)

/s/ ~~Justin K. Bigham~~W. Jack Plants II		, May ~~8, 2020~~10, 2021
~~Justin K. Bigham~~W. Jack Plants II
~~Executive~~Senior Vice President and Chief Financial Officer and Treasurer
(Principal Financial Officer)

/s/ Sonia M. Dumbleton		, May ~~8, 2020~~10, 2021
Sonia M. Dumbleton
Senior Vice President and Controller
(Principal Accounting Officer)