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MarketScreener Homepage  >  Equities  >  Nyse  >  Community Bank System, Inc.    CBU

COMMUNITY BANK SYSTEM, INC. (CBU)
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COMMUNITY BANK SYSTEM : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/09/2018 | 08:45pm CET
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") primarily reviews the financial condition and results of
operations of Community Bank System, Inc. (the "Company" or "CBSI") as of and
for the three and nine months ended September 30, 2018 and 2017, although in
some circumstances the second quarter of 2018 is also discussed in order to more
fully explain recent trends.  The following discussion and analysis should be
read in conjunction with the Company's Consolidated Financial Statements and
related notes that appear on pages 3 through 30.  All references in the
discussion of the financial condition and results of operations refer to the
consolidated position and results of the Company and its subsidiaries taken as a
whole.  Unless otherwise noted, the term "this year" and equivalent terms refers
to results in calendar year 2018, "third quarter" refers to the three months
ended September 30, 2018, "YTD" refers to the nine months ended September 30,
2018, and earnings per share ("EPS") figures refer to diluted EPS.

This MD&A contains certain forward-looking statements with respect to the
financial condition, results of operations, and business of the Company.  These
forward-looking statements involve certain risks and uncertainties.  Factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements are set herein under the caption,
"Forward-Looking Statements," on page 48.

Critical Accounting Policies


As a result of the complex and dynamic nature of the Company's business,
management must exercise judgment in selecting and applying the most appropriate
accounting policies for its various areas of operations.  The policy decision
process not only ensures compliance with the latest generally accepted
accounting principles ("GAAP"), but also reflects management's discretion with
regard to choosing the most suitable methodology for reporting the Company's
financial performance.  It is management's opinion that the accounting estimates
covering certain aspects of the business have more significance than others due
to the relative importance of those areas to overall performance, or the level
of subjectivity in the selection process.  These estimates affect the reported
amounts of assets and liabilities as well as disclosures of revenues and
expenses during the reporting period.  Actual results could differ from these
estimates.  Management believes that the critical accounting estimates include:

· Acquired loans - Acquired loans are initially recorded at their acquisition

date fair values based on a discounted cash flow methodology that involves

assumptions and judgments as to credit risk, prepayment risk, liquidity risk,

default rates, loss severity, payment speeds, collateral values, and discount

  rate.



Acquired loans deemed impaired at acquisition are recorded in accordance with
ASC 310-30.  The excess of undiscounted cash flows expected at acquisition over
the estimated fair value is referred to as the accretable discount.  The
difference between contractually required payments at acquisition and the
undiscounted cash flows expected to be collected at acquisition is referred to
as the non-accretable discount, which represents estimated future credit losses
and other contractually required payments that the Company does not expect to
collect.  Subsequent decreases in expected cash flows are recognized as
impairments through a charge to the provision for loan losses resulting in an
increase in the allowance for loan losses.  Subsequent improvements in expected
cash flows result in a recovery of previously recorded allowance for loan losses
or a reversal of a corresponding amount of the non-accretable discount, which
the Company then reclassifies as an accretable discount that is recognized into
interest income over the remaining life of the loans using the interest method.

For acquired loans that are not deemed impaired at acquisition, the difference
between the acquisition date fair value and the outstanding balance represents
the fair value adjustment for a loan, and includes both credit and interest rate
considerations. Subsequent to the purchase date, the methods used to estimate
the allowance for loan losses for the acquired non-impaired loans is consistent
with the policy described below.  However, for loans collectively evaluated for
impairment, the Company compares the net realizable value of the loans to the
carrying value.  The carrying value represents the net of the loan's unpaid
principal balance and the remaining purchase discount or premium that has yet to
be accreted into interest income.  When the carrying value exceeds the net
realizable value, an allowance for loan losses is recognized.  For loans
individually evaluated for impairment, a provision is recorded when the required
allowance exceeds any remaining discount on the loan.

· Allowance for loan losses - The allowance for loan losses reflects management's

best estimate of probable loan losses in the Company's loan portfolio.

Determination of the allowance for loan losses is inherently subjective. It

requires significant estimates, including the amounts and timing of expected

future cash flows on impaired loans, appraisal values of underlying collateral

for collateralized loans, and the amount of estimated losses on pools of

homogeneous loans which is based on historical loss experience and

consideration of current economic trends, all of which may be susceptible to

  significant change.



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· Investment securities - Investment securities are classified as

held-to-maturity, available-for-sale, or trading. The appropriate

classification is based partially on the Company's ability to hold the

securities to maturity and largely on management's intentions with respect to

either holding or selling the securities. The classification of investment

securities is significant since it directly impacts the accounting for

unrealized gains and losses on securities. Unrealized gains and losses on

available-for-sale debt securities are recorded in accumulated other

comprehensive income or loss, as a separate component of shareholders' equity,

and do not affect earnings until realized. Unrealized gains and losses on

equity securities with a readily determinable fair value are recognized in the

consolidated statements of income. The fair values of investment securities

are generally determined by reference to quoted market prices, where

available. If quoted market prices are not available, fair values are based on

quoted market prices of comparable instruments, or a discounted cash flow model

using market estimates of interest rates and volatility. Investment securities

with significant declines in fair value are evaluated to determine whether they

should be considered other-than-temporarily impaired ("OTTI"). An unrealized

loss is generally deemed to be other-than-temporary and a credit loss is deemed

to exist if the present value of the expected future cash flows is less than

the amortized cost basis of the debt security. The credit loss component of an

OTTI write-down is recorded in earnings, while the remaining portion of the

impairment loss is recognized in other comprehensive income (loss), provided

the Company does not intend to sell the underlying debt security, and it is not

  more likely than not that the Company will be required to sell the debt
  security prior to recovery of the full value of its amortized cost basis.


· Retirement benefits - The Company provides defined benefit pension benefits to

eligible employees and post-retirement health and life insurance benefits to

certain eligible retirees. The Company also provides deferred compensation and

supplemental executive retirement plans for selected current and former

employees. Expense under these plans is charged to current operations and

consists of several components of net periodic benefit cost based on various

actuarial assumptions regarding future experience under the plans, including,

but not limited to, discount rate, rate of future compensation increases,

mortality rates, future health care costs, and the expected return on plan

  assets.



· Intangible assets - As a result of acquisitions, the Company carries goodwill

and identifiable intangible assets. Goodwill represents the cost of acquired

companies in excess of the fair value of net assets at the acquisition date.

Goodwill is evaluated at least annually, or when business conditions suggest

impairment may have occurred. Should impairment occur, goodwill will be

reduced to its carrying value through a charge to earnings. Core deposits and

other identifiable intangible assets are amortized to expense over their

estimated useful lives. The determination of whether or not impairment exists

is based upon discounted cash flow modeling techniques that require management

to make estimates regarding the amount and timing of expected future cash

flows. It also requires them to select a discount rate that reflects the

current return requirements of the market in relation to current credit

risk-free interest rates, required equity market premiums, and company-specific

performance and risk metrics, all of which are susceptible to change based on

changes in economic and market conditions and other factors. Future events or

changes in the estimates used to determine the carrying value of goodwill and

identifiable intangible assets could have a material impact on the Company's

  results of operations.



A summary of the accounting policies used by management is disclosed in Note A,
"Summary of Significant Accounting Policies" on pages 63-71 of the most recent
Form 10-K (fiscal year ended December 31, 2017) filed with the Securities and
Exchange Commission ("SEC") on March 1, 2018.

Supplemental Reporting of Non-GAAP Results of Operations


The Company also provides supplemental reporting of its results on a "net
adjusted" or "tangible" basis, from which it excludes the after-tax effect of
amortization of core deposit and other intangible assets (and the related
goodwill, core deposit intangible and other intangible asset balances, net of
applicable deferred tax amounts), accretion on non-impaired purchased loans,
acquisition expenses, the unrealized gain(loss) on equity securities, loss on
debt extinguishment and the one-time benefit from the revaluation of net
deferred tax liabilities.  Although "adjusted net income" as defined by the
Company is a non-GAAP measure, the Company's management believes this
information helps investors understand the effect of acquisition activity in its
reported results.  Reconciliations of GAAP amounts with corresponding non-GAAP
amounts are presented in Table 11.

Executive Summary


The Company's business philosophy is to operate as a diversified financial
services enterprise providing a broad array of banking and financial services to
retail, commercial and municipal customers.  The Company's banking subsidiary is
Community Bank, N.A. (the "Bank" or "CBNA").  The Company also provides employee
benefit related services via its Benefit Plans Administrative Services, Inc.
("BPAS") subsidiary, and wealth management and insurance-related services.

The Company's core operating objectives are: (i) grow the branch network,
primarily through a disciplined acquisition strategy, and certain selective de
novo expansions, (ii) build profitable loan and deposit volume using both
organic and acquisition strategies, (iii) manage an investment securities
portfolio to complement the Company's loan and deposit strategies and optimize
interest rate risk, yield and liquidity, (iv) increase the noninterest component
of total revenues through development of banking-related fee income, growth in
existing financial services business units, and the acquisition of additional
financial services and banking businesses, and (v) utilize technology to deliver
customer-responsive products and services and improve efficiencies.
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Significant factors reviewed by management to evaluate achievement of the
Company's operating objectives and its operating results and financial condition
include, but are not limited to: net income and earnings per share, return on
assets and equity, net interest margins, noninterest revenues, noninterest
expenses, asset quality, loan and deposit growth, capital management,
performance of individual banking and financial services units, performance of
specific product lines and customers, liquidity and interest rate sensitivity,
enhancements to customer products and services and their underlying performance
characteristics, technology advancements, market share, peer comparisons, and
the performance of recently acquired businesses.

On January 2, 2018, the Company, through its subsidiary, OneGroup NY, Inc.
("OneGroup"), completed its acquisition of certain assets of Penna & Associates
Agency, Inc. ("Penna"), an insurance agency headquartered in Johnson City, New
York.  The Company paid $0.8 million in cash to acquire the assets of Penna, and
recorded goodwill in the amount of $0.3 million and a customer list intangible
asset of $0.3 million in conjunction with the acquisition.  The effects of the
acquired assets have been included in the consolidated financial statements
since that date.

On January 2, 2018, the Company, through its subsidiary, Community Investment
Services, Inc. ("CISI"), completed its acquisition of certain assets of Styles
Bridges Associates ("Styles Bridges"), a financial services business
headquartered in Canton, New York.  The Company paid $0.7 million in cash to
acquire a customer list from Styles Bridges, and recorded a $0.7 million
customer list intangible asset in conjunction with the acquisition.  The effects
of the acquired assets have been included in the consolidated financial
statements since that date.

On April 2, 2018, the Company, through its subsidiary, Benefit Plans
Administrative Services, Inc. ("BPAS"), acquired certain assets of HR
Consultants (SA), LLC ("HR Consultants"), a benefits consulting group
headquartered in Puerto Rico.  The Company paid $0.3 million in cash to acquire
the assets of HR Consultants and recorded intangible assets of $0.3 million in
conjunction with the acquisition.  The effects of the acquired assets have been
included in the consolidated financial statements since that date.

Third quarter net income increased $7.9 million, or 22.3%, compared to the third
quarter of 2017.  Earnings per share of $0.83 for the third quarter of 2018
increased $0.15 from the third quarter of 2017.  The increase in net income and
earnings per share for the quarter are primarily the result of higher net
interest income, a slightly lower provision for loan losses, higher noninterest
revenues, lower acquisition expenses and a lower effective tax rate, partially
offset by higher noninterest expenses, and an increase in diluted shares
outstanding.  Third quarter net income and earnings per share were also impacted
by debit interchange fee limitations established by the Durbin amendment of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank
Act") that were effective for the Company beginning in the third quarter of
2018.  Third quarter net income adjusted to exclude acquisition expenses,
unrealized gain on equity securities, loss on debt extinguishment, amortization
of intangibles and acquired non-impaired loan accretion, increased $6.3 million,
or 16.7%, as compared to the third quarter of 2017.  Earnings per share adjusted
to exclude acquisition expenses, unrealized gain on equity securities, loss on
debt extinguishment, amortization of intangibles and acquired non-impaired loan
accretion of $0.84 for the third quarter increased $0.11, or 15.1%, compared to
the third quarter of 2017.

September 2018 YTD net income increased $49.1 million, or 62.4%, compared to the
first nine months of 2017.  Earnings per share 2018 YTD of $2.46 was $0.86
higher than 2017 YTD earnings per share.  The increase in net income and
earnings per share for the YTD period are primarily the result of higher net
interest income, higher noninterest revenues, lower acquisition expenses
attributable to the Merchants Bancshares, Inc. ("Merchants") and Northeast
Retirement Services, Inc. ("NRS") acquisitions in 2017, partially offset by
higher noninterest expenses, an increase in the provision for loan losses and an
increase in diluted shares outstanding.  YTD net income and earnings per share
were also impacted by debit interchange fee limitations mandated by the Durbin
amendment of the Dodd-Frank Act.  YTD net income adjusted to exclude acquisition
expenses, unrealized gain on equity securities, loss on debt extinguishment,
amortization of intangibles and acquired non-impaired loan accretion, increased
$31.2 million, or 30.7%, compared to September YTD 2017.  Earnings per share
adjusted for acquisition expenses, unrealized gain on equity securities, loss on
debt extinguishment, amortization of intangibles and acquired non-impaired loan
accretion of $2.55 for the first nine months of 2018 increased $0.48, or 23.2%,
compared to the first nine months of 2017.

Average loans and deposits were down for the quarter, but increased on YTD in
comparison to the equivalent prior year period, due primarily to the Merchants
acquisition completed in May 2017.  On an ending basis, both loans and deposits
decreased compared to the prior year.

U.S. market interest rates have increased over the past year.  In connection
with these rising interest rates, the Company's total cost of funds increased
slightly from the prior year period.  However, the increase in the rate paid on
interest-bearing deposits was moderated by the change in mix of the Company's
funding base with a shift toward lower cost core funding sources.  Due to the
Merchants acquisition, the majority of the Company's borrowings are customer
repurchase agreements, rather than wholesale borrowings obtained through capital
markets and correspondent banks.  Customer repurchase agreements have deposit
like features and typically bear lower rates of interest than other types of
wholesale borrowings.

The third quarter 2018 provision for loan losses was $0.1 million lower than the
third quarter of 2017, while the September YTD provision for loan losses was
$2.7 million higher than the prior YTD period.  The increase in the September
YTD provision is primarily due to growth in certain non-acquired loan
portfolios.  Third quarter 2018 nonperforming loans were up $1.6 million
compared to the third quarter of 2017.  Net charge-offs were $1.7 million for
the third quarter of 2018, compared to $1.8 million of net charge-offs for the
third quarter of 2017.

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Net Income and Profitability

As shown in Table 1, net income for the third quarter of $43.1 million increased
$7.9 million, or 22.3%, as compared to the third quarter of 2017.  September YTD
net income of $127.8 million increased $49.1 million, or 62.4%, compared to
September YTD 2017.  Earnings per share of $0.83 for the third quarter increased
$0.15 compared to the third quarter of 2017, while earnings per share for the
first nine months of 2018 of $2.46 was $0.86 higher than the first nine months
of 2017.  The increase in net income and earnings per share for the quarter are
primarily the result of higher net interest income, a slightly lower provision
for loan losses, higher noninterest revenues, lower acquisition expenses and a
lower effective tax rate, partially offset by higher noninterest expenses, and
an increase in diluted shares outstanding.  The increase in net income and
earnings per share for the YTD period are primarily the result of higher net
interest income, higher noninterest revenues, lower acquisition expenses and a
lower effective tax rate, partially offset by higher noninterest expenses, an
increase in the provision for loan losses and an increase in diluted shares
outstanding.  Net income adjusted to exclude acquisition expenses, unrealized
gain on equity securities, loss on debt extinguishment, amortization of
intangibles and acquired non-impaired loan accretion was $44.0 million for the
third quarter of 2018.  This represents an increase of $6.3 million, or 16.7%,
as compared to the third quarter of 2017.  Net income adjusted to exclude
acquisition expenses, unrealized gain on equity securities, loss on debt
extinguishment, amortization of intangibles and acquired non-impaired loan
accretion of $133.0 million for the September YTD period increased $31.2
million, or 30.7%, compared to September YTD 2017.  Earnings per share adjusted
to exclude acquisition expenses, unrealized gain on equity securities, loss on
debt extinguishment, amortization of intangibles and acquired non-impaired loan
accretion of $0.84 for the third quarter and $2.55 for the YTD period, was up
$0.11 compared to the third quarter of 2017, and up $0.48 compared to the first
nine months of 2017.  See Table 11 for Reconciliation of GAAP to Non-GAAP
Measures.

As reflected in Table 1, third quarter net interest income of $86.2 million was
up $1.8 million, or 2.1%, from the comparable prior year period.  Net interest
income for the first nine months of 2018 increased $28.0 million, or 12.2%,
versus the first nine months of 2017.  The quarterly improvement in net interest
income resulted from an increase in the yield on interest-earning assets and a
decrease in interest-bearing liability balances, partially offset by a decrease
in interest-earning assets and an increase in the average rate paid on
interest-bearing liabilities.  The year-over-year improvement was due to an
increase in interest-earning assets and an increase in the yield on
interest-earning assets, primarily due to the impact of the Merchants
acquisition, partially offset by an increase in interest-bearing liabilities and
the average rate paid on interest-bearing liabilities.

Third quarter and YTD noninterest revenues were $55.8 million and $169.8
million, respectively, up $2.9 million, or 5.4%, from the third quarter of 2017
and up $21.4 million, or 14.4%, from the first nine months of 2017.  The YTD
increase was primarily a result of the Merchants acquisition completed in May
2017 and the NRS acquisition completed in February 2017, offset by the $3.4
million impact of debit interchange fee limitations established by the Durbin
amendment of the Dodd-Frank Act that were effective for the Company beginning in
the third quarter of 2018.  The quarterly results were favorably impacted by
acquired and organic growth, offset by the impact of the Durbin amendment.
Between the third quarter of 2017 and the third quarter of 2018, the Company
acquired four small insurance and wealth management practices contributing to
revenue growth.  Employee benefit services revenues for the quarter increased
primarily due to organic increases in plan asset and participant levels.

Noninterest expenses of $85.2 million for the third quarter reflected an
increase of $1.5 million, or 1.7%, from the third quarter of 2017, while
noninterest expenses of $257.7 million for the September YTD period reflected a
decrease of $2.6 million, or 1.0%, from the first nine months of 2017.
Excluding acquisition-related expenses, 2018 operating expenses were $2.9
million, or 3.4%, higher for the third quarter and $23.4 million, or 10.0%,
higher for the YTD timeframe.  The increases in noninterest expenses were
largely the result of operating a larger franchise, including the impact of the
Merchants and NRS acquisitions.

The effective income tax rates were 21.0% and 20.9% for the third quarter and
YTD 2018, respectively, as compared to 31.2% and 30.0% for the comparable prior
year periods.  The decrease in effective income tax rates between the periods is
primarily attributable to the impact of the Tax Cuts and Jobs Act of 2017 ("Tax
Cuts and Jobs Act") signed into law in December 2017.  The Tax Cuts and Jobs Act
permanently lowered the corporate tax rate from 35% to 21% for tax years
including or commencing January 1, 2018.  The windfall tax benefit associated
with stock-based compensation reduced income taxes by $0.3 million and $2.2
million for the third quarter and YTD 2018, respectively, as compared to a
reduction of $0.3 million and $2.9 million for the comparable prior year
periods.

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A condensed income statement is as follows:

                      Table 1: Condensed Income Statements

                                          Three Months Ended           Nine Months Ended
                                            September 30,                September 30,

(000's omitted, except per share

   data)                                  2018          2017          2018  

2017

   Net interest income                 $   86,198$  84,395     $ 

257,668 $ 229,698

   Provision for loan losses                2,215         2,314         8,342         5,603
   Noninterest revenues                    55,791        52,941       169,841       148,485
   Noninterest expenses                    85,233        83,776       257,676       260,230
   Income before income taxes              54,541        51,246       161,491       112,350
   Income taxes                            11,435        16,003        33,673        33,659
   Net income                          $   43,106$  35,243$ 127,818$  78,691

Diluted weighted average common

   shares outstanding                      52,086        51,526        51,925        49,067
   Diluted earnings per share          $     0.83$    0.68$    2.46$    1.60



Net Interest Income

Net interest income is the amount by which interest and fees on earning assets
(loans, investments, and cash equivalents) exceeds the cost of funds, which
consists primarily of interest paid to the Company's depositors and on external
borrowings.  Net interest margin is the difference between the yield on earning
assets and the cost of interest-bearing funds as a percentage of earning assets.

As shown in Table 2a, net interest income (with nontaxable income converted to a
fully tax-equivalent basis) for the third quarter was $87.3 million, a $0.5
million, or 0.6%, increase from the same period last year.  A ten basis point
increase in the average yield on earning assets and a $300.6 million decrease in
average interest-bearing liabilities favorably impacted net interest income.
This was partially offset by a decrease in interest-earning assets of $120.6
million and a five basis point increase in the average rate paid on
interest-bearing liabilities.  As reflected in Table 3, the third quarter
increase in the average yield on earning assets and the volume decrease on
interest-bearing liabilities had a combined $2.5 million favorable impact on net
interest income, while the volume decrease in interest-earning assets and the
rate increase on interest-bearing liabilities had a $2.0 million unfavorable
impact on net interest income.  September YTD net interest income of $261.0
million, as reflected in Table 2b, increased $24.2 million, or 10.2%, from the
year-earlier period.  The September YTD increase resulted from an increase in
interest-earning assets of $762.8 million from the prior year, reflective of the
Merchants acquisition, and a seven basis point increase in the earning asset
yield, partially offset by a $315.9 million increase in average interest-bearing
liabilities and a four basis point increase in the rate paid on interest-bearing
liabilities.  The volume increase in interest-earning assets and increase in
yield had a $26.7 million favorable impact on September YTD net interest income,
while the volume increase on interest-bearing liabilities and rate increase on
interest-bearing liabilities had a $2.5 million unfavorable impact on net
interest income.

The higher net interest margin for the third quarter of 2018 as compared to the
third quarter of 2017 was the result of a ten basis point increase in the
earning asset yield, partially offset by a five basis point increase in the
average rate on interest-bearing liabilities.  The net interest margin of 3.72%
for the first nine months of 2018 was five basis points higher than the
comparable period of 2017.  The yield on interest-earning assets increased seven
basis points, while the rate on interest-bearing liabilities increased four
basis points for the first nine months of 2018 as compared to the prior year
period.

The higher average yield on earning assets for the quarter was the result of an
increase in the average yield on loans, partially offset by a decrease in the
average yield on investments.  For the third quarter, the average yield on loans
increased by 20 basis points, while the average yield on investments, including
cash equivalents, decreased 14 basis points compared to the prior year.  The
seven basis point increase in the yield on earning assets for the first nine
months of 2018 was the result of a 19 basis point increase in the average yield
on loans compared to the comparable period of 2017, partially offset by a 22
basis point decrease in the average yield on investments, including cash
equivalents.  The increase in the loan yield was due primarily to an increase in
acquired loan accretion on the acquired Merchants portfolio.  The lower average
yield of investments was the result of maturing higher interest rate investments
being replaced with lower rate instruments.

The average rate on interest-bearing liabilities increased by five basis points
compared to the prior year quarter as the average rate paid on borrowings
increased 52 basis points and the rate paid on interest-bearing deposits
increased four basis points from the prior year quarter.  For the first nine
months of 2018, the average rate on interest-bearing deposits increased three
basis points from the comparable prior year period, while the average rate on
borrowings increased 14 basis points.  The increase in the average cost of
borrowings was primarily the result of an increase in the variable rates paid on
overnight borrowings and subordinated debt due to increases in market interest
rates.

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The third quarter average balance of investments, including cash equivalents,
decreased $67.0 million as compared to the corresponding prior year period as
maturities, calls and principal payments outpaced investment purchases.  The
third quarter YTD average balance of investments, including cash equivalents,
increased $167.7 million, principally the result of securities acquired in the
Merchants transaction.  Average loan balances decreased $53.6 million for the
quarter and increased $595.1 million YTD as compared to the prior year, with
$541.2 million of the YTD increase a result of the Merchants acquisition.

The average balance of interest-bearing deposits for the third quarter decreased
$153.0 million compared to the prior year quarter, while the YTD average of
interest-bearing deposits increased $258.1 million compared to the prior year
period.  The Merchants transaction was responsible for a $325.3 million increase
in YTD average interest-bearing deposits.  The average borrowing balance,
including FHLB borrowings, subordinated debt held by unconsolidated subsidiary
trusts, and securities sold under agreement to repurchase (customer repurchase
agreements), decreased $147.6 million for the quarter and increased $57.8
million for the YTD period.  The quarterly decrease in average borrowings was
primarily a result of a decrease in overnight borrowings and the redemption of
the subordinated debt held by Community Statutory Trust III, an unconsolidated
subsidiary trust, and associated preferred securities during the third quarter
of 2018 for a total of $25.2 million.

Tables 2a and 2b below set forth information related to average interest-earning
assets and interest-bearing liabilities and their associated yields and rates
for the periods indicated.  Interest income and yields are on a fully
tax-equivalent basis ("FTE") using marginal income tax rates of 24.4% and 37.8%
in 2018 and 2017, respectively.  Average balances are computed by totaling the
daily ending balances in a period and dividing by the number of days in that
period.  Loan interest income and yields include amortization of deferred loan
income and costs and the accretion of acquired loan marks.  Average loan
balances include nonaccrual loans and loans held for sale.

                   Table 2a: Quarterly Average Balance Sheet

                                        Three Months Ended                               Three Months Ended
                                        September 30, 2018                               September 30, 2017
                                                               Avg.                                             Avg.
(000's omitted except        Average                        Yield/Rate        Average                        Yield/Rate
yields and rates)            Balance         Interest          Paid           Balance         Interest          Paid
Interest-earning assets:
Cash equivalents           $     26,832$       108            1.60 %   $     26,986$        74            1.09 %
Taxable investment
securities (1)                2,574,116          15,313            2.36 %      2,571,459          15,155            2.34 %
Nontaxable investment
securities (1)                  441,719           4,081            3.67 %        511,182           5,758            4.47 %
Loans (net of unearned
discount)(2)                  6,289,868          72,472            4.57 %      6,343,468          69,881            4.37 %
Total interest-earning
assets                        9,332,535          91,974            3.91 %      9,453,095          90,868            3.81 %
Noninterest-earning
assets                        1,287,337                                        1,409,518
Total assets               $ 10,619,872$ 10,862,613

Interest-bearing
liabilities:
Interest checking,
savings, and money
market deposits            $  5,333,657           1,589            0.12 %   $  5,411,179           1,262            0.09 %
Time deposits                   743,924           1,175            0.63 %        819,412             861            0.42 %
Customer repurchase
agreements                      216,389             393            0.72 %        241,283             315            0.52 %
FHLB borrowings                  71,040             403            2.25 %        176,949             587            1.32 %
Subordinated debt held
by unconsolidated
subsidiary trusts               106,054           1,145            4.28 %        122,804           1,067            3.45 %
Total interest-bearing
liabilities                   6,471,064           4,705            0.29 %      6,771,627           4,092            0.24 %
Noninterest-bearing
liabilities:
Noninterest checking
deposits                      2,336,778                                        2,307,205
Other liabilities               147,796                                          196,502
Shareholders' equity          1,664,234                                        1,587,279
Total liabilities and
shareholders' equity       $ 10,619,872$ 10,862,613

Net interest earnings                       $    87,269$    86,776

Net interest spread                                                3.62 %                                           3.57 %
Net interest margin on
interest-earning assets                                            3.71 %                                           3.64 %

Fully tax-equivalent
adjustment                                  $     1,071$     2,381

(1) Averages for investment securities are based on historical cost basis and the

yields do not give effect to changes in fair value that is reflected as a

component of noninterest-earning assets, shareholders' equity, and deferred

taxes.

(2) Includes nonaccrual loans. The impact of interest and fees not recognized on

     nonaccrual loans was immaterial.



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                  Table 2b: Year-to-Date Average Balance Sheet

                                       Nine Months Ended                              Nine Months Ended
                                       September 30, 2018                            September 30, 2017
                                                             Avg.                                          Avg.
(000's omitted except        Average                      Yield/Rate        Average                     Yield/Rate
yields and rates)            Balance        Interest         Paid           Balance       Interest         Paid
Interest-earning assets:
Cash equivalents           $     95,761$   1,188            1.66 %   $    40,002$     283            0.95 %
Taxable investment
securities (1)                2,577,807        46,275            2.40 %     2,395,567        43,687            2.44 %
Nontaxable investment
securities (1)                  455,816        12,651            3.71 %       526,113        17,861            4.54 %
Loans (net of unearned
discount)(2)                  6,259,668       213,481            4.56 %     5,664,591       185,076            4.37 %
Total interest-earning
assets                        9,389,052       273,595            3.90 %     8,626,273       246,907            3.83 %
Noninterest-earning
assets                        1,306,465                                     1,237,619
Total assets               $ 10,695,517$ 9,863,892

Interest-bearing
liabilities:
Interest checking,
savings, and money
market deposits            $  5,438,539         4,353            0.11 %   $ 5,174,225         3,573            0.09 %
Time deposits                   753,853         2,924            0.52 %       760,071         2,345            0.41 %
Customer repurchase
agreements                      262,999         1,192            0.61 %       124,216           394            0.42 %
FHLB borrowings                  34,179           530            2.07 %       119,638         1,049            1.17 %
Subordinated debt held
by unconsolidated
subsidiary trusts               117,170         3,645            4.16 %       112,677         2,808            3.33 %
Total interest-bearing
liabilities                   6,606,740        12,644            0.26 %     6,290,827        10,169            0.22 %
Noninterest-bearing
liabilities:
Noninterest checking
deposits                      2,298,008                                     1,961,220
Other liabilities               147,208                                       177,297
Shareholders' equity          1,643,561                                     1,434,548
Total liabilities and
shareholders' equity       $ 10,695,517$ 9,863,892

Net interest earnings                       $ 260,951$ 236,738

Net interest spread                                              3.64 %                                        3.61 %
Net interest margin on
interest-earning assets                                          3.72 %                                        3.67 %

Fully tax-equivalent
adjustment                                  $   3,283$   7,040

(1) Averages for investment securities are based on historical cost basis and the

yields do not give effect to changes in fair value that is reflected as a

component of noninterest-earning assets, shareholders' equity, and deferred

taxes.

(2) Includes nonaccrual loans. The impact of interest and fees not recognized on

     nonaccrual loans was immaterial.



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As discussed above and disclosed in Table 3 below, the change in net interest
income (fully tax-equivalent basis) may be analyzed by segregating the volume
and rate components of the changes in interest income and interest expense for
each underlying category.

                              Table 3: Rate/Volume

                                      Three months ended September 30, 2018                     Nine months ended September 30, 2018
                                            versus September 30, 2017                                versus September 30, 2017
                                     Increase (Decrease) Due to Change in (1)                 Increase (Decrease) Due to Change in (1)
                                                                           Net                                                      Net
(000's omitted)                   Volume               Rate              Change            Volume               Rate               Change
Interest earned on:
Cash equivalents               $           0       $         34       $          34     $         587       $         318       $        905
Taxable investment
securities                                16                142                 158             3,280                (692 )            2,588
Nontaxable investment
securities                              (723 )             (954 )            (1,677 )          (2,203 )            (3,007 )           (5,210 )
Loans                                   (595 )            3,186               2,591            20,045               8,360             28,405
Total interest-earning
assets (2)                            (1,170 )            2,276               1,106            22,162               4,526             26,688

Interest paid on:
Interest checking, savings
and money  market deposits               (18 )              345                 327               189                 591                780
Time deposits                            (85 )              399                 314               (19 )               598                579
Customer repurchase
agreements                               (29 )              107                  78               570                 228                798
FHLB borrowings                         (465 )              281                (184 )          (1,025 )               506               (519 )
Subordinated debt held by
unconsolidated subsidiary
trusts                                  (159 )              237                  78               116                 721                837
Total interest-bearing
liabilities (2)                         (188 )              801                 613               531               1,944              2,475

Net interest earnings (2)             (1,117 )            1,610                 493            21,169               3,044             24,213



(1) The change in interest due to both rate and volume has been allocated to

volume and rate changes in proportion to the relationship of the absolute

dollar amounts of such change in each component.

(2) Changes due to volume and rate are computed from the respective changes in

average balances and rates of the totals; they are not a summation of the

changes of the components.

Noninterest Revenues


The Company's sources of noninterest revenues are of four primary types: 1)
general banking services related to loans, deposits, and other core customer
activities typically provided through the branch network and electronic banking
channels (performed by CBNA); 2) employee benefit services (performed by BPAS
and its subsidiaries); 3) wealth management services, comprised of trust
services (performed by the trust unit within CBNA), investment products and
services (performed by CISI) and asset management services (performed by
Nottingham Advisors, Inc.); and 4) insurance products and services (performed by
OneGroup).  The Company also periodically records net gains or losses from the
sale of investment securities and prepayment of debt instruments.

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                         Table 4: Noninterest Revenues

                                          Three Months Ended           Nine Months Ended
                                            September 30,                September 30,
   (000's omitted)                        2018          2017          2018          2017
   Deposit service fees                $   16,127$  18,419$  54,268$  49,781
   Employee benefit services               23,265        20,767        

68,813 58,618

   Insurance services                       8,270         6,344        

23,044 19,709

   Wealth management services               6,168         5,707        19,370        16,105
   Other banking services                   1,192         1,335         2,794         2,846
   Mortgage banking                           344           369         1,148         1,424
   Subtotal                                55,366        52,941       169,437       148,483

Unrealized gain on equity

   securities                                 743             0           722             0
   Loss on debt extinguishment               (318 )           0          (318 )           0

Gain on sales of investment

   securities, net                              0             0             0             2

Total noninterest revenues $ 55,791$ 52,941$ 169,841$ 148,485

Noninterest revenues/operating

   revenues (FTE basis) (1)                  39.4 %        38.4 %        39.9 %        38.9 %


(1) For purposes of this ratio noninterest revenues exclude gain on

sales of investment securities, unrealized gain on equity securities and

    loss on debt extinguishment. Operating revenues, a non-GAAP measure, is
    defined as net interest income on a fully-tax equivalent basis plus
    noninterest revenue, excluding gain on sales of investment securities,
    unrealized gain on equity securities, loss on debt extinguishment and
    acquired non-impaired loan accretion.  See Table 11 for Reconciliation
    of GAAP to Non-GAAP Measures.



As displayed in Table 4, noninterest revenues were $55.8 million for the third
quarter of 2018 and $169.8 million for the first nine months of 2018.  This
represents an increase of $2.9 million, or 5.4%, for the quarter and $21.4
million, or 14.4%, for the YTD period in comparison to 2017.  The quarterly
increase was driven by higher employee benefit services revenue (up $2.5
million), higher wealth management and insurance revenue (up $2.4 million) and
an unrealized gain on equity securities of $0.7 million, partially offset by
lower deposit service fees (down $2.3 million), lower other banking services
revenue (down $0.1 million), slightly lower mortgage banking revenue and a $0.3
million loss on debt extinguishment.  The YTD increase was driven by higher
deposit service fees (up $4.5 million), higher employee benefit services revenue
(up $10.2 million), higher wealth management and insurance revenue (up $6.6
million) and an unrealized gain on equity securities of $0.7 million, partially
offset by lower other banking services revenue (down $0.1 million), lower
mortgage banking revenue (down $0.3 million) and a $0.3 million loss on debt
extinguishment. The increases primarily related to incremental banking revenues
from the Merchants acquisition and revenues from acquired financial services
activities, partially offset by the impact of debit interchange fee limitations
established by the Durbin amendment of the Dodd-Frank Act that were effective
for the Company beginning in the third quarter of 2018.

General recurring banking noninterest revenue, including deposit service fees
and other banking services, totaling $17.3 million for the third quarter and
$57.1 million for the first nine months of 2018 were down $2.4 million, or
12.3%, and up $4.4 million, or 8.4%, respectively, as compared to the
corresponding prior year periods.  Beginning in the third quarter of 2018, the
Company became subject to the limitation on interchange fees for debit card
transactions established by the Durbin amendment of the Dodd-Frank Act for
financial institutions with total assets greater than $10.0 billion.  The $2.4
million quarter-over-quarter decrease in recurring banking noninterest revenue
was primarily due to a $3.4 million, or $0.05 per share, decrease in deposit
service fees due to the impact of Durbin amendment debit interchange price
restrictions. The increase in banking noninterest revenues over the comparable
nine month period was primarily driven by an expanded customer base following
the Merchants transaction, partially offset by the impact of Durbin amendment
debit interchange price restrictions.

Mortgage banking income totaled $0.3 million for the third quarter of 2018 and
$1.1 million for the first nine months of 2018, which was consistent with the
prior year quarter and a decrease of $0.3 million compared to the prior YTD
period.  Mortgage banking income consists of realized gains or losses from the
sale of residential mortgage loans and the origination of mortgage loan
servicing rights, unrealized gains and losses on residential mortgage loans held
for sale and related commitments, mortgage loan servicing fees and other
residential mortgage loan-related fee income.  Mortgage loans sold to investors,
primarily Fannie Mae, totaled $8.3 million in the third quarter of 2018 and
$16.3 million for the first nine months of 2018 compared to $8.9 million and
$24.3 million in the respective comparable prior year periods.  Realization of
the unrealized gains or losses on mortgage loans held for sale and the related
commitments, as well as future revenue generation from mortgage banking
activities, are dependent on market conditions and long-term interest rate
trends.

Employee benefit services revenue increased $2.5 million, or 12.0%, over the
comparable quarterly period, and $10.2 million, or 17.4%, over the comparable
YTD period.  The quarterly increase is primarily due to organic growth in plan
asset and participant levels, while the YTD increase is due to organic growth
and acquired growth associated with the NRS acquisition completed in 2017.
Wealth management and insurance services revenues were up $2.4 million, or
19.8%, for the third quarter of 2018 and up $6.6 million, or 18.4%, for 2018 YTD
as compared to the same time periods of 2017 due to both organic and acquired
revenue growth from OneGroup and CISI.

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The ratio of noninterest revenues to total revenues (FTE basis) was 39.4% for
the quarter and 39.9% for the nine months ended September 30, 2018,
respectively, versus 38.4% and 38.9% for the comparable periods of 2017.  The
increase in this ratio for the YTD period is due to a 14.1% increase in
noninterest revenues versus a 9.5% increase in adjusted net interest income (FTE
basis), primarily the result of the mix of business acquired in the NRS and
Merchants transactions.

Noninterest Expenses


Table 5 below sets forth the quarterly and YTD results of the major noninterest
expense categories for the current and prior year, as well as efficiency ratios
(defined below), a standard measure of expense utilization effectiveness
commonly used in the banking industry.

                         Table 5: Noninterest Expenses

                                        Three Months Ended           Nine Months Ended
                                          September 30,                September 30,
     (000's omitted)                    2018          2017          2018          2017
     Salaries and employee
     benefits(1)                     $   51,062$  48,426$ 155,323$ 137,897
     Occupancy and equipment              9,770         9,106        29,738        25,939
     Data processing and
     communications                      10,509         9,313        29,463        28,229
     Amortization of intangible
     assets                               4,427         4,949        13,780        11,980
     Legal and professional fees          2,522         2,764         8,047         7,796
     Business development and
     marketing                            2,587         2,586         7,301         7,119
     Acquisition expenses                  (832 )         580          (769 )      25,192
     Other                                5,188         6,052        14,793        16,078
     Total noninterest expenses      $   85,233$  83,776$ 257,676$ 260,230

     Noninterest operating
     expenses(2)/average assets            3.05 %        2.86 %        3.06 %        3.02 %
     Efficiency ratio(3)                   58.0 %        56.8 %        57.7 %        58.5 %


(1) In accordance with ASU No. 2017-07, Compensation - Retirement Benefits (Topic

715): Improving the Presentation of Net Periodic Pension Cost and Net

Periodic Postretirement Benefit Cost, $1.9 million and $5.1 million of income

from components of net periodic benefit income other than service cost was

     reclassified from Salaries and employee benefits to Other noninterest
     expenses for the three and nine months ended September 30, 2017,
     respectively.

(2) Operating expenses, a non-GAAP measure, is calculated as total noninterest

expenses less acquisition expenses and amortization of intangibles. See

Table 11 for Reconciliation of GAAP to Non-GAAP Measures.

(3) Efficiency ratio, a non-GAAP measure, is calculated as operating expenses as

defined in (2) divided by net interest income on a fully tax-equivalent basis

excluding acquired non-impaired loan accretion plus noninterest revenues

excluding gains and losses on investment sales, unrealized gains and losses

     on equity securities and loss on debt extinguishment.  See Table 11 for
     Reconciliation of GAAP to Non-GAAP Measures.



As shown in Table 5, the Company recorded noninterest expenses of $85.2 million
and $257.7 million for the third quarter and YTD periods of 2018, respectively.
This represents an increase of $1.5 million, or 1.7%, from the third quarter of
2017 and a $2.6 million, or 1.0%, decrease from the YTD 2017 period.
Acquisition expenses were $1.4 million and $26.0 million less in the third
quarter and YTD 2018 periods, respectively, as compared to the corresponding
2017 periods.  Salaries and employee benefits increased $2.6 million, or 5.4%,
and $17.4 million, or 12.6%, for the third quarter and YTD periods of 2018,
respectively, as compared to the corresponding periods of 2017.  The main
drivers of the increase were more full-time equivalent employees due to the
Merchants and NRS acquisitions and annual merit-based and incentive-based
personnel cost increases.  The remaining change to noninterest expenses can be
attributed to occupancy and equipment (up $0.7 million for the quarter and $3.8
million YTD), data processing and communications (up $1.2 million for the
quarter and $1.2 million YTD), amortization of intangible assets (down $0.5
million for the quarter and up $1.8 million YTD), legal and professional fees
(down $0.2 million for the quarter and up $0.3 million YTD), business
development and marketing (consistent with the prior year quarter and up $0.2
million YTD), and other expenses (down $0.9 million for the quarter and down
$1.3 million YTD).  The increases in quarterly and YTD operating expenses were
primarily driven by the additional costs associated with the acquired Merchants
and NRS business activities.

The Company's efficiency ratio (as defined in the table above) was 58.0% for the
third quarter, 1.2% higher than the comparable quarter of 2017.  This resulted
from operating expenses as described above increasing by 4.3%, while operating
revenues (as described above) increased by a lesser 2.0% from higher
FTE-adjusted net interest income and growth in noninterest revenues.  The
efficiency ratio of 57.7% for the first nine months of 2018 was 0.8% favorable
compared to the first nine months of 2017 due to 9.5% higher FTE-adjusted net
interest income excluding acquired non-impaired loan accretion and a 14.1%
increase in noninterest revenues excluding realized and unrealized gains and
losses on investments resulting in an increase in operating revenue of 11.3%,
while operating expenses (as described above) increased at a lesser 9.7%.
Current year operating expenses, excluding intangible amortization and
acquisition expenses, as a percentage of average assets increased 19 basis
points versus the prior year quarter and was four basis points above the prior
YTD period.  Operating expenses (as defined above) increased 4.3% for the
quarter and 9.7% for the YTD period, while average assets decreased 2.2% for the
quarter and increased 8.4% for the YTD period, impacted by asset growth related
to the Merchants acquisition, offset by additional operating costs associated
with operating a larger enterprise.

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Income Taxes

The third quarter and YTD 2018 effective income tax rates were 21.0% and 20.9%,
respectively, as compared to the 31.2% and 30.0% for the comparable periods of
2017.  The decline in the rate is primarily attributable to the impact of the
Tax Cuts and Jobs Act signed into law in December 2017, combined with the impact
of the windfall tax benefit associated with accounting for share-based
transactions.  The Tax Cuts and Jobs Act lowered the corporate tax rate from 35%
to 21% for tax years including or commencing January 1, 2018.  Excluding the
reduction in income tax expense associated with the windfall tax benefit from
share-based transactions, the third quarter and YTD 2018 effective income tax
rates were 21.5% and 22.2%, respectively, as compared to 31.9% and 32.5% for the
comparable periods of 2017.

Investment Securities

The carrying value of investments, including unrealized gains and losses on
available-for-sale securities, was $2.95 billion at the end of the third
quarter, a decrease of $133.3 million from December 31, 2017 and $177.2 million
lower than September 30, 2017.  The book value (excluding unrealized gains and
losses) of investments decreased $57.3 million from December 31, 2017 and $72.2
million from September 30, 2017.  During the first nine months of 2018, the
Company purchased $47.5 million of government agency mortgage-backed securities
with an average yield of 3.43%.  The Company also received proceeds from $102.5
million of investment maturities, calls, and principal payments during the first
nine months of 2018.

The change in the carrying value of investments is also impacted by the amount
of net unrealized gains and losses.  At September 30, 2018, the net unrealized
loss on the investment portfolio was $52.0 million.  This represents a decrease
of $76.0 million from the unrealized gain at December 31, 2017 and a $105.0
million decrease from the unrealized gain at September 30, 2017.  These changes
in the net unrealized gains were principally driven by the movement in long-term
interest rates.

                         Table 6: Investment Securities

                                September 30, 2018               December 31, 2017              September 30, 2017
                             Amortized         Fair          Amortized         Fair          Amortized         Fair
(000's omitted)                Cost            Value           Cost            Value           Cost            Value

Available-for-Sale
Portfolio:
U.S.Treasury and agency
securities                  $ 2,039,086$ 1,998,095$ 2,043,023$ 2,054,071$ 2,040,820$ 2,074,141
Obligations of state and
political subdivisions          473,048         475,365         514,949         528,956         540,810         557,959
Government agency
mortgage-backed
securities                      369,970         358,063         358,180         357,538         342,838         344,922
Corporate debt securities         2,603           2,550           2,648           2,623           2,663           2,662
Government agency
collateralized mortgage
obligations                      73,112          70,706          88,097          87,374          93,922          94,049
Marketable equity
securities                            0               0             251             526             251             527
Total available-for-sale
portfolio                     2,957,819       2,904,779       3,007,148       3,031,088       3,021,304       3,074,260

Equity and other
Securities:
Equity securities, at
fair value                          251             498               0               0               0               0
Federal Home Loan Bank
common stock                      6,343           6,343           9,896           9,896           8,837           8,837
Federal Reserve Bank
common stock                     30,690          30,690          30,690          30,690          30,690          30,690
Certificates of deposit               0               0           3,865           3,865           5,581           5,581
Other equity securities,
at adjusted cost                  4,997           5,747           5,840           5,840           5,850           5,850
Total equity and other
securities                       42,281          43,278          50,291     

50,291 50,958 50,958


Total investments           $ 3,000,100$ 2,948,057$ 3,057,439$ 3,081,379$ 3,072,262$ 3,125,218



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Loans

As shown in Table 7, loans ended the third quarter at $6.30 billion, down $7.8
million, or 0.1%, from one year earlier and up $44.1 million, or 0.7%, from the
end of 2017.  The decrease in loans outstanding compared to one year earlier is
primarily related to a decrease in commercial loans outstanding in the Company's
New England region, partially offset by loan growth in the New York and
Pennsylvania markets.  The increase in loans compared to the end of 2017 is due
to growth in the Company's consumer direct and indirect installment portfolios,
offset by decreases in the business lending, consumer mortgage and home equity
portfolios.

                                 Table 7: Loans

(000's omitted)       September 30, 2018           December 31, 2017          September 30, 2017
Business lending    $ 2,403,624        38.2 %   $ 2,424,223        38.7 %   $ 2,458,981        39.0 %
Consumer mortgage     2,220,022        35.2 %     2,220,298        35.5 %     2,206,527        35.0 %
Consumer indirect     1,098,943        17.4 %     1,011,978        16.2 %     1,034,716        16.4 %
Consumer direct         184,349         2.9 %       179,929         2.9 %       183,898         2.9 %
Home equity             393,950         6.3 %       420,329         6.7 %       424,598         6.7 %
Total loans         $ 6,300,888       100.0 %   $ 6,256,757       100.0 %   $ 6,308,720       100.0 %



The business lending portfolio consists of general-purpose business lending to
commercial and industrial customers, municipal lending, mortgages on commercial
property, and dealer floor plan financing.  The business lending portfolio
decreased $55.4 million, or 2.3%, from September 30, 2017 and decreased $20.6
million, or 0.8%, from December 31, 2017, as contractual and unscheduled
principal reductions outpaced loan originations.  Highly competitive conditions
continue to prevail in the markets in which the Company operates.  The Company
strives to generate growth in its business portfolio in a manner that adheres to
its goals of maintaining strong asset quality and producing profitable margins.
The Company continues to invest in additional personnel, technology and business
development resources to further strengthen its capabilities in this important
product category.

Consumer mortgages increased $13.5 million, or 0.6%, from one year ago and
decreased $0.3 million from December 31, 2017.  Consumer mortgage volume has
been relatively strong over the last several years due to historically low
long-term rates and comparatively stable real estate valuations in the Company's
primary markets.  However, recent increases in mortgage rates have altered the
primary loan purpose to predominately new home purchases, while negatively
impacting refinance origination volumes.  Interest rate levels and expected
duration continue to be the most significant factors in determining whether the
Company chooses to retain, versus sell and service, portions of its new mortgage
production.  Home equity loans decreased $30.6 million, or 7.2%, from one year
ago and decreased $26.4 million, or 6.3%, from December 31, 2017.  Similar to
refinance origination volumes in the Company's consumer mortgage portfolio,
rising interest rates have impacted the level of utilization of the Company's
home equity loan product.

Consumer installment loans, both those originated directly in the branches
(referred to as "consumer direct") and indirectly in automobile, marine, and
recreational vehicle dealerships (referred to as "consumer indirect"), increased
$64.7 million, or 5.3%, from one year ago and increased $91.4 million, or 7.7%,
from December 31, 2017.  Although the consumer indirect loan market is highly
competitive, the Company is focused on maintaining a profitable, in-market and
contiguous market indirect portfolio, while continuing to pursue the expansion
of its dealer network.

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Asset Quality

Table 8 below exhibits the major components of nonperforming loans and assets
and key asset quality metrics for the periods ending September 30, 2018 and 2017
and December 31, 2017.

                         Table 8: Nonperforming Assets

                                               September 30,       December 31,       September 30,
(000's omitted)                                    2018                2017               2017
Nonaccrual loans
Business lending                              $         7,046     $        8,272     $         4,723
Consumer mortgage                                      12,353             13,788              13,980
Consumer indirect                                           0                  0                   0
Consumer direct                                             0                  0                   0
Home equity                                             2,583              2,680               2,807
Total nonaccrual loans                                 21,982             24,740              21,510
Accruing loans 90+ days delinquent
Business lending                                          355                571                  79
Consumer mortgage                                       1,982              1,526               1,505
Consumer indirect                                         209                303                 167
Consumer direct                                            20                 48                  69
Home equity                                               385                264                  41
Total accruing loans 90+ days delinquent                2,951              2,712               1,861
Nonperforming loans
Business lending                                        7,401              8,843               4,802
Consumer mortgage                                      14,335             15,314              15,485
Consumer indirect                                         209                303                 167
Consumer direct                                            20                 48                  69
Home equity                                             2,968              2,944               2,848
Total nonperforming loans                              24,933             27,452              23,371
Other real estate owned (OREO)                          1,142              1,915               1,873
Total nonperforming assets                    $        26,075     $       

29,367 $ 25,244


Nonperforming loans / total loans                        0.40 %             0.44 %              0.37 %
Nonperforming assets / total loans and
other real estate                                        0.41 %             0.47 %              0.40 %
Delinquent loans (30 days old to
nonaccruing) to total loans                              0.93 %             1.10 %              1.05 %
Net charge-offs to average loans
outstanding (quarterly)                                  0.11 %             0.37 %              0.11 %
Legacy net charge-offs to average legacy
loans outstanding (quarterly)                            0.12 %             0.20 %              0.14 %
Provision for loan losses to net
charge-offs (quarterly)                                   130 %               93 %               130 %
Legacy provision for loan losses to net
charge-offs (quarterly) (1)                               138 %               67 %               125 %


(1) Legacy loans exclude loans acquired after January 1, 2009. These ratios are

      included for comparative purposes to prior periods.



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The Company's asset quality remained positive in the third quarter of 2018 and
continued to illustrate the long-term effectiveness of the Company's disciplined
risk management and underwriting standards.  As displayed in Table 8,
nonperforming assets at September 30, 2018 were $26.1 million.  This represents
a $3.3 million decrease as compared to the level at the end of 2017 and a $0.8
million increase as compared to one year earlier.  Nonperforming loans decreased
$2.5 million from year-end 2017 and increased $1.6 million from September 30,
2017.  Other real estate owned ("OREO") at September 30, 2018 was $1.1 million.
This compares to $1.9 million at December 31, 2017 and $1.9 million from
September 30, 2017.  At September 30, 2018, OREO consisted of 23 residential
properties.  This compares to three commercial properties with a total value of
$0.6 million and 27 residential OREO properties with a total value of $1.3
million at December 31, 2017 and three commercial properties with a total value
of $0.9 million and 23 residential properties with a total value of $1.0 million
at September 30, 2017.  Nonperforming loans were 0.40% of total loans
outstanding at the end of the third quarter; four basis points lower than the
level at December 31, 2017 and a three basis point increase from the level at
September 30, 2017.

Consumer mortgages comprised 57% of nonperforming loans at September 30, 2018.
Collateral values of residential properties within the Company's market area
have generally remained stable over the past several years.  Additionally,
economic conditions, including lower unemployment levels, have positively
impacted consumers.  Approximately 30% of the nonperforming loans at September
30, 2018 were related to the business lending portfolio, which is comprised of
business loans broadly diversified by industry type.  The level of nonperforming
business loans increased from the prior year, but decreased from December 31,
2017.  The remaining 13% of nonperforming loans relate to consumer installment
and home equity loans, with home equity non-performing loan levels being driven
by similar factors identified for consumer mortgages.  The allowance for loan
losses to nonperforming loans ratio, a general measure of coverage adequacy, was
201% at the end of the third quarter, as compared to 173% at year-end 2017 and
205% at September 30, 2017.

The Company's senior management, special asset officers and lenders review all
delinquent and nonaccrual loans and OREO regularly in order to identify
deteriorating situations, monitor known problem credits and discuss any needed
changes to collection efforts, if warranted.  Based on the group's consensus, a
relationship may be assigned a special assets officer or other senior lending
officer to review the loan, meet with the borrowers, assess the collateral and
recommend an action plan.  This plan could include foreclosure, restructuring
loans, issuing demand letters or other actions.  The Company's larger criticized
credits are also reviewed on a quarterly basis by senior credit administration
management, special assets officers and commercial lending management to monitor
their status and discuss relationship management plans.  Commercial lending
management reviews the criticized loan portfolio on a monthly basis.

Delinquent loans (30 days past due through nonaccruing) as a percent of total
loans was 0.93% at the end of the third quarter, 17 basis points below the 1.10%
at year-end 2017 and 12 basis points below the 1.05% at September 30, 2017. 

The

business lending delinquency ratio at the end of the third quarter was six basis
points below the level at December 31, 2017 and 11 basis points below the level
at September 30, 2017.  The delinquency ratios for consumer direct, consumer
indirect and consumer mortgage loans decreased as compared to the levels at
December 31, 2017 and September 30, 2017.  The delinquency ratio for the home
equity portfolio increased as compared to both December 31, 2017 and the level
one year ago.  The Company's success at keeping the nonperforming and
delinquency ratios at favorable levels has been the result of its continued
focus on maintaining strict underwriting standards, as well as the effective
utilization of its collection and recovery capabilities.

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                  Table 9: Allowance for Loan Losses Activity
                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
(000's omitted)                               2018          2017           2018          2017
Allowance for loan losses at beginning
of period                                  $   49,618$  47,451$   47,583$  47,233
Charge-offs:
Business lending                                   73           124          2,368         1,246
Consumer mortgage                                 144           198            588           541
Consumer indirect                               2,364         2,328          6,031         5,969
Consumer direct                                   465           574          1,324         1,463
Home equity                                       221             0            325           228
Total charge-offs                               3,267         3,224         10,636         9,447
Recoveries:
Business lending                                   93           127            404           481
Consumer mortgage                                  46            24            109            42
Consumer indirect                               1,190         1,058          3,688         3,379
Consumer direct                                   223           221            612           648
Home equity                                        15            12             31            44
Total recoveries                                1,567         1,442          4,844         4,594

Net charge-offs                                 1,700         1,782          5,792         4,853
Provision for loans losses                      2,215         2,314          8,342         5,603

Allowance for loan losses at end of
period                                     $   50,133$  47,983$   50,133$  47,983
Allowance for loan losses / total loans          0.80 %        0.76 %         0.80 %        0.76 %
Allowance for legacy loan losses / total
legacy loans (1)                                 0.96 %        1.00 %         0.96 %        1.00 %
Allowance for loan losses /
nonperforming loans                               201 %         205 %          201 %         205 %
Allowance for legacy loan losses  /
legacy nonperforming loans (1)                    274 %         276 %          274 %         276 %
Net charge-offs (annualized) to average
loans outstanding:
Business lending                                 0.00 %        0.03 %         0.11 %        0.03 %
Consumer mortgage                                0.02 %        0.00 %         0.03 %        0.05 %
Consumer indirect                                0.43 %        0.48 %         0.30 %        0.33 %
Consumer direct                                  0.50 %        0.74 %         0.51 %        0.57 %
Home equity                                      0.21 %       -0.01 %         0.10 %        0.06 %
Total loans                                      0.11 %        0.11 %         0.12 %        0.11 %


(1) Legacy loans exclude loans acquired after January 1, 2009. These ratios are

included for comparative purposes to prior periods.




As displayed in Table 9, net charge-offs during the third quarter of 2018 were
$1.7 million, $0.1 million lower than the third quarter of 2017.  Net
charge-offs for the nine months ended September 30, 2018 were $5.8 million, a
$0.9 million increase from the first nine months of 2017.  The business lending
and home equity portfolios experienced higher net charge-offs through the first
nine months of 2018, as compared to the first nine months of 2017, while the
consumer mortgage, consumer indirect and consumer direct portfolios experienced
lower net charge-offs than the prior YTD period.  The annualized net charge-off
ratio (net charge-offs as a percentage of average loans outstanding) for the
third quarter of 2018 was 0.11%, consistent with the third quarter of 2017. 

Net

charge-off ratios for the third quarter of 2018 for all portfolios except
consumer indirect and home equity were below the Company's average for the
trailing eight quarters.  The September YTD annualized net charge-off ratio of
0.12% for total loans was one basis point higher than the equivalent prior year
period.

The Company recorded a $2.2 million provision for loan losses in the third
quarter, with $2.1 million related to legacy loans and $0.1 million related to
acquired loans.  The third quarter provision was $0.1 million lower than the
equivalent prior year period.  The third quarter 2018 loan loss provision was
$0.5 million more than the level of net charge-offs for the quarter.  The
allowance for loan losses of $50.1 million as of September 30, 2018 increased
$2.2 million from the level one year ago.  Stable asset quality metrics have
resulted in an allowance for loan losses to total loans ratio of 0.80% at
September 30, 2018, four basis points higher than the level at September 30,
2017 and four basis points above the level at December 31, 2017.

As of September 30, 2018, the purchase discount related to the $1.34 billion of
remaining non-impaired loan balances acquired from Merchants, Oneida Savings
Bank, HSBC Bank USA, N.A., First Niagara Bank, N.A., and Wilber National Bank
was approximately $25.7 million, or 1.9% of that portfolio, with $2.5 million
included in the allowance for loan losses for acquired loans where the carrying
value exceeded the estimated net recoverable value.

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Deposits

As shown in Table 10, average total deposits were $8.41 billion in the third
quarter.  These were down $123.4 million, or 1.4%, compared to the third quarter
of 2017, and decreased $99.5 million, or 1.2%, from the fourth quarter of last
year.  The mix of average deposit balances changed as the weighting of core
deposits (noninterest checking, interest checking, savings and money markets)
has increased from the prior year levels.  Conversely, the proportion of time
deposits decreased over the past 12 months, consistent with the last several
years.  This change in deposit mix reflects the Company's goal of expanding core
account relationships.  This shift in product mix helped contain the Company's
cost of deposits at 0.13% in spite of significant increases in market interest
rates between the periods, three basis points higher than the third quarter of
2017.

Average nonpublic fund deposits for the third quarter of 2018 increased $36.5
million, or 0.5%, versus the fourth quarter of 2017 and decreased $38.9 million,
or 0.5%, versus the prior year third quarter.  Average public fund deposits for
the third quarter decreased $135.9 million, or 12.8%, from the fourth quarter of
2017 and $84.5 million, or 8.4%, from the third quarter of 2017.  Public fund
deposits as a percentage of total deposits decreased from 11.8% in the third
quarter of 2017 to 11.0% in the third quarter of 2018.

                      Table 10: Quarterly Average Deposits

                                   September 30,       December 31,       September 30,
  (000's omitted)                      2018                2017               2017
  Noninterest checking deposits   $     2,336,778$    2,307,155$     2,307,205
  Interest checking deposits            1,890,900          1,823,552           1,810,915
  Savings deposits                      1,464,272          1,419,703           1,415,439
  Money market deposits                 1,978,485          2,181,141           2,184,825
  Time deposits                           743,924            782,267             819,412
  Total deposits                  $     8,414,359$    8,513,818$     8,537,796

  Nonpublic fund deposits         $     7,488,333$    7,451,849$     7,527,279
  Public fund deposits                    926,026          1,061,969           1,010,517
  Total deposits                  $     8,414,359$    8,513,818$     8,537,796

Borrowings and Repurchase Agreements


Borrowings at the end of the third quarter totaled $99.9 million, including
subordinated debt held by unconsolidated subsidiary trusts and other long-term
debt.  This was $24.9 million, or 20.0%, lower than borrowings at December 31,
2017 and $26.5 million, or 20.9%, below the end of the third quarter of 2017.
The decrease was primarily due to the redemption of the trust preferred
subordinated debt held by Community Statutory Trust III, an unconsolidated
subsidiary trust, during the third quarter of 2018 for a total of $25.2 million.

Securities sold under agreement to repurchase, also referred to as customer
repurchase agreements, represent collateralized municipal and commercial
customer accounts that price and operate similar to a deposit instrument.
Customer repurchase agreements were $274.6 million at the end of the third
quarter of 2018, a decrease of $62.5 million from December 31, 2017 and $36.1
million below September 30, 2017.  This decreases from the end of 2017 and the
prior year third quarters were due primarily to the seasonal characteristics of
this portfolio.

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Shareholders' Equity

Total shareholders' equity was $1.67 billion at the end of the third quarter.
This was up $33.0 million, or 2.0%, from the balance at December 31, 2017.
During the first nine months of 2018, the Company recorded net income of $127.8
million, issued $7.2 million of treasury stock to the Company's benefit plans,
issued $5.8 million of shares under the employee stock plan and $4.6 million
from employee stock options earned.  These amounts were partially offset by a
$58.2 million decrease in other comprehensive income and dividends declared of
$54.2 million.  The change in other comprehensive income was comprised of a
$58.0 million decrease in the after-tax market value adjustment on the
available-for-sale investment portfolio and a negative $0.2 million adjustment
to the funded status of the Company's retirement plans.  Over the past 12
months, total shareholders' equity increased by $75.1 million, as net income and
the issuance of common stock in association with the employee stock plan and the
Company's benefit plans more than offset a lower market value adjustment on
investments, dividends declared and the change in the funded status of the
Company's defined benefit pension and other postretirement plans.

The Company's Tier 1 leverage ratio, a primary measure of regulatory capital for
which 5% is the requirement to be "well-capitalized", was 10.72% at the end of
the third quarter, up 72 basis points from year-end 2017 and 1.18% above its
level one year earlier.  The increase in the Tier 1 leverage ratio in comparison
to December 31, 2017 was primarily due to an increase in ending shareholders'
equity, excluding intangibles and other comprehensive income items, increasing
6.5%, primarily from net earnings retention, while average assets, excluding
intangibles and the market value adjustment on investments, decreased 0.6%. 

The

Tier 1 leverage ratio increased compared to the prior year's third quarter as
shareholders' equity, excluding intangibles and other comprehensive income,
increased 10.5% primarily due to earnings retention, while average assets
excluding intangibles and the market value adjustment, decreased 1.7%.  The net
tangible equity-to-assets ratio (a non-GAAP measure) of 9.13% increased 0.52%
from December 31, 2017 and increased 0.77% versus September 30, 2017 (See Table
11 for Reconciliation of GAAP to Non-GAAP Measures).  The increase in the
tangible equity ratio over the past 12 months was due to a proportionally larger
increase in tangible equity levels than the increase in tangible assets.

The dividend payout ratio, defined as dividends declared divided by net income,
for the first nine months of 2018 was 42.4%, compared to 61.3% for the nine
months ended September 30, 2017.  Net income increased 62.4% over the prior year
period due to the impact of one-time costs incurred in association with the
Merchants and NRS acquisitions on prior year earnings and a lower effective tax
rate on current year earnings, while dividends declared increased 12.4% as the
Company's quarterly dividend per share was raised from $0.34 to $0.38 in August
2018.  The 2018 dividend increase marked the Company's 26th consecutive year of
increased dividend payouts to common shareholders.  Additionally, the number of
common shares outstanding increased 1.1% over the last twelve months.

Liquidity


Liquidity risk is a measure of the Company's ability to raise cash when needed
at a reasonable cost and minimize any loss.  The Company maintains appropriate
liquidity levels in both normal operating environments as well as stressed
environments.  The Company must be capable of meeting all obligations to its
customers at any time and, therefore, the active management of its liquidity
position remains an important management objective.  The Bank has appointed the
Asset Liability Committee ("ALCO") to manage liquidity risk using policy
guidelines and limits on indicators of potential liquidity risk.  The indicators
are monitored using a scorecard with three risk level limits.  These risk
indicators measure core liquidity and funding needs, capital at risk and change
in available funding sources.  The risk indicators are monitored using such
statistics as the core basic surplus ratio, unencumbered securities to average
assets, free loan collateral to average assets, loans to deposits, deposits to
total funding and borrowings to total funding ratios.

Given the uncertain nature of our customers' demands as well as the Company's
desire to take advantage of earnings enhancement opportunities, the Company must
have adequate sources of on- and off-balance sheet funds available that can be
acquired in time of need.  Accordingly, in addition to the liquidity provided by
balance sheet cash flows, liquidity must be supplemented with additional sources
such as credit lines from correspondent banks and borrowings from the Federal
Home Loan Bank of New York and the Federal Home Loan Bank of Boston
(collectively referred to as "FHLB") and the Federal Reserve Bank of New York
("Federal Reserve").  Other funding alternatives may also be appropriate from
time to time, including wholesale and retail repurchase agreements, large
certificates of deposit and the brokered CD market.  The primary source of
non-deposit funds is FHLB overnight advances, of which there were no outstanding
borrowings at September 30, 2018.

The Company's primary sources of liquidity are its liquid assets, as well as
unencumbered securities that can be used to collateralize additional funding.
At September 30, 2018, the Company had $256.8 million of cash and cash
equivalents of which $56.9 million are interest-earning deposits held at the
Federal Reserve, FHLB and other correspondent banks.  The Company also had $1.7
billion in unused FHLB borrowing capacity based on the Company's quarter-end
collateral levels.  Additionally, the Company has $1.5 billion of unencumbered
securities that could be pledged at the FHLB or Federal Reserve to obtain
additional funding.  There is $25 million available in unsecured lines of credit
with other correspondent banks.

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The Company's primary approach to measuring short-term liquidity is known as the
Basic Surplus/Deficit model.  It is used to calculate liquidity over two time
periods: first, the amount of cash that could be made available within 30 days
(calculated as liquid assets less short-term liabilities as a percentage of
average assets); and second, a projection of subsequent cash availability over
an additional 60 days.  As of September 30, 2018, this ratio was 13.3% for
30-days and 13.5% for 90-days, excluding the Company's capacity to borrow
additional funds from the FHLB and other sources.  There is a sufficient amount
of liquidity based on the Company's internal policy requirement of 7.5%.

A sources and uses statement is used by the Company to measure intermediate
liquidity risk over the next twelve months.  As of September 30, 2018, there is
more than enough liquidity available during the next year to cover projected
cash outflows.  In addition, stress tests on the cash flows are performed in
various scenarios ranging from high probability events with a low impact on the
liquidity position to low probability events with a high impact on the liquidity
position.  The results of the stress tests as of September 30, 2018 indicate the
Bank has sufficient sources of funds for the next year in all simulated stressed
scenarios.

To measure longer-term liquidity, a baseline projection of loan and deposit
growth for five years is made to reflect how liquidity levels could change over
time.  This five-year measure reflects ample liquidity for loan and other asset
growth over the next five years.

Though remote, the possibility of a funding crisis exists at all financial
institutions.  Accordingly, management has addressed this issue by formulating a
Liquidity Contingency Plan, which has been reviewed and approved by both the
Company's Board of Directors (the "Board") and the Company's ALCO.  The plan
addresses the actions that the Company would take in response to both a
short-term and long-term funding crisis.

A short-term funding crisis would most likely result from a shock to the
financial system, either internal or external, which disrupts orderly short-term
funding operations.  Such a crisis would likely be temporary in nature and would
not involve a change in credit ratings.  A long-term funding crisis would most
likely be the result of drastic credit deterioration at the Company.  Management
believes that both potential circumstances have been fully addressed through
detailed action plans and the establishment of trigger points for monitoring
such events.

Forward-Looking Statements

This document contains comments or information that constitute forward-looking
statements (within the meaning of the Private Securities Litigation Reform Act
of 1995), which involve significant risks and uncertainties.  Forward-looking
statements often use words such as "anticipate," "target," "expect," "estimate,"
"intend," "plan," "goal," "forecast, " "believe," or other words of similar
meaning.  Actual results may differ materially from the results discussed in the
forward-looking statements.  Moreover, the Company's plans, objectives and
intentions are subject to change based on various factors (some of which are
beyond the Company's control).  Factors that could cause actual results to
differ from those discussed in the forward-looking statements include:  (1)
risks related to credit quality, interest rate sensitivity and liquidity;  (2)
the strength of the U.S. economy in general and the strength of the local
economies where the Company conducts its business;  (3) the effect of, and
changes in, monetary and fiscal policies and laws, including interest rate
policies of the Board of Governors of the Federal Reserve System;  (4)
inflation, interest rate, market and monetary fluctuations;  (5) the timely
development of new products and services and customer perception of the overall
value thereof (including, but not limited to, features, pricing and quality)
compared to competing products and services;  (6) changes in consumer spending,
borrowing and savings habits;  (7) technological changes and implementation and
financial risks associated with transitioning to new technology-based systems
involving large multi-year contracts;  (8) the ability of the Company to
maintain the security of its financial, accounting, technology, data processing
and other operating systems and facilities;  (9) any acquisitions or mergers
that might be considered or consummated by the Company and the costs and factors
associated therewith, including differences in the actual financial results of
the acquisition or merger compared to expectations and the realization of
anticipated cost savings and revenue enhancements;  (10) the ability to maintain
and increase market share and control expenses;  (11) the nature, timing and
effect of changes in banking regulations or other regulatory or legislative
requirements affecting the respective businesses of the Company and its
subsidiaries, including changes in laws and regulations concerning taxes,
accounting, banking, risk management, securities and other aspects of the
financial services industry, specifically the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010;  (12) changes in the Company's organization,
compensation and benefit plans and in the availability of, and compensation
levels for, employees in its geographic markets;  (13) the outcome of pending or
future litigation and government proceedings; (14) other risk factors outlined
in the Company's filings with the SEC from time to time; and (15) the success of
the Company at managing the risks of the foregoing.

The foregoing list of important factors is not all-inclusive.  Such
forward-looking statements speak only as of the date on which they are made and
the Company does not undertake any obligation to update any forward-looking
statement, whether written or oral, to reflect events or circumstances after the
date on which such statement is made.  If the Company does update or correct one
or more forward-looking statements, investors and others should not conclude
that the Company would make additional updates or corrections with respect
thereto or with respect to other forward-looking statements.

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Reconciliation of GAAP to Non-GAAP Measures

                   Table 11: GAAP to Non-GAAP Reconciliations

                                                Three Months Ended                Nine Months Ended
                                                   September 30,                    September 30,
(000's omitted)                                2018             2017             2018            2017
Income statement data

Net income
Net income (GAAP)                          $     43,106$     35,243$    127,818$    78,691
Acquisition expenses                               (832 )            580             (769 )        25,192
Tax effect of acquisition expenses                  174             (181 )            163          (7,750 )
Subtotal (non-GAAP)                              42,448           35,642          127,212          96,133
Unrealized gain on equity securities               (743 )              0             (722 )             0
Tax effect of unrealized gain on equity
securities                                          156                0              152               0
Subtotal (non-GAAP)                              41,861           35,642          126,642          96,133
Loss on debt extinguishment                         318                0              318               0
Tax effect of loss on debt
extinguishment                                      (67 )              0              (67 )             0
Subtotal (non-GAAP)                              42,112           35,642          126,893          96,133
Amortization of intangibles                       4,427            4,949           13,780          11,980
Tax effect of amortization of
intangibles                                        (928 )         (1,545 )         (2,883 )        (3,627 )
Subtotal (non-GAAP)                              45,611           39,046          137,790         104,486
Acquired non-impaired loan accretion             (1,980 )         (1,879 )         (6,083 )        (3,958 )
Tax effect of acquired non-impaired loan
accretion                                           415              587            1,271           1,216
Adjusted net income (non-GAAP)             $     44,046$     37,754

$ 132,978$ 101,744


Return on average assets
Adjusted net income (non-GAAP)             $     44,046$     37,754$    132,978$   101,744
Average total assets                         10,619,872       10,862,613       10,695,517       9,863,892
Adjusted return on average assets
(non-GAAP)                                         1.65 %           1.38 %  

1.66 % 1.38 %


Return on average equity
Adjusted net income (non-GAAP)             $     44,046$     37,754$    132,978$   101,744
Average total equity                          1,664,234        1,587,279        1,643,561       1,434,548
Adjusted return on average equity
(non-GAAP)                                        10.50 %           9.44 %  

10.82 % 9.48 %


Earnings per common share
Diluted earnings per share (GAAP)          $       0.83$       0.68$       2.46$      1.60
Acquisition expenses                              (0.02 )           0.01            (0.02 )          0.51
Tax effect of acquisition expenses                 0.00             0.00             0.00           (0.15 )
Subtotal (non-GAAP)                                0.81             0.69             2.44            1.96
Unrealized gain on equity securities              (0.01 )           0.00            (0.01 )          0.00
Tax effect of unrealized gain on equity
securities                                         0.00             0.00             0.00            0.00
Subtotal (non-GAAP)                                0.80             0.69             2.43            1.96
Loss on debt extinguishment                        0.01             0.00             0.01            0.00
Tax effect of loss on debt
extinguishment                                     0.00             0.00            (0.00 )          0.00
Subtotal (non-GAAP)                                0.81             0.69             2.44            1.96
Amortization of intangibles                        0.08             0.10             0.27            0.25
Tax effect of amortization of
intangibles                                       (0.02 )          (0.03 )          (0.06 )         (0.08 )
Subtotal (non-GAAP)                                0.87             0.76             2.65            2.13
Acquired non-impaired loan accretion              (0.04 )          (0.04 )          (0.12 )         (0.08 )
Tax effect of acquired non-impaired loan
accretion                                          0.01             0.01             0.02            0.02
Diluted adjusted net earnings per share
(non-GAAP)                                 $       0.84$       0.73$       2.55$      2.07



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                                             Three Months Ended           Nine Months Ended
                                                September 30,               September 30,
(000's omitted)                              2018          2017          2018          2017
Income statement data (continued)
Noninterest operating expenses
Noninterest expenses (GAAP)                $  85,233$  83,776$ 257,676$ 260,230
Amortization of intangibles                   (4,427 )      (4,949 )     (13,780 )     (11,980 )
Acquisition expenses                             832          (580 )         769       (25,192 )
Total noninterest operating expenses
(non-GAAP)                                 $  81,638$  78,247     $ 

244,665 $ 223,058


Efficiency ratio
Noninterest operating expenses
(non-GAAP) - numerator                     $  81,638$  78,247$ 244,665$ 223,058
Fully tax-equivalent net interest income      87,269        86,776       260,951       236,738
Noninterest revenues                          55,791        52,941       169,841       148,485
Acquired non-impaired loan accretion          (1,980 )      (1,879 )      (6,083 )      (3,958 )
Unrealized gain on equity securities            (743 )           0          (722 )           0
Loss on debt extinguishment                      318             0           318             0
Gain on sales of investments                       0             0             0            (2 )
Operating revenues (non-GAAP) -
denominator                                $ 140,655$ 137,838$ 424,305$ 381,263
Efficiency ratio (non-GAAP)                     58.0 %        56.8 %        57.7 %        58.5 %



                                       September 30,      December 31,       September 30,
(000's omitted)                            2018               2017               2017
Balance sheet data - at end of
quarter
Total assets
Total assets (GAAP)                   $    10,659,567$  10,746,198$    10,850,218
Intangible assets                            (811,700 )        (825,088 )          (824,355 )
Deferred taxes on intangible assets            46,882            48,419     

75,820

Total tangible assets (non-GAAP)      $     9,894,749$   9,969,529$    10,101,683

Total common equity
Shareholders' Equity (GAAP)           $     1,668,345$   1,635,315$     1,593,245
Intangible assets                            (811,700 )        (825,088 )          (824,355 )
Deferred taxes on intangible assets            46,882            48,419     

75,820

Total tangible common equity
(non-GAAP)                            $       903,527$     858,646

$ 844,710


Net tangible equity-to-assets ratio
at quarter end
Total tangible common equity
(non-GAAP) - numerator                $       903,527$     858,646$       844,710
Total tangible assets (non-GAAP) -
denominator                           $     9,894,749$   9,969,529$    10,101,683
Net tangible equity-to-assets ratio
at quarter end (non-GAAP)                        9.13 %            8.61 %              8.36 %

© Edgar Online, source Glimpses

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