Good morning, and welcome to the Community Bank System Fourth Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 and that are based on current expectations, estimates and projections about the industry, markets and economic environment in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company's annual report and Form 10-K filed with the Securities and Exchange Commission. Today's call presenters are Mark Tryniski, President and Chief Executive Officer; and Joseph Sutaris, Executive Vice President and Chief Financial Officer. They will be joined by Joseph Serbun, Executive Vice President and Chief Banking Officer, for the question-and-answer session. Gentlemen, you may begin.

Thank you, Chad. Good morning, everyone, and thank you for joining our year-end conference call. We hope everyone is well. Our earnings for the quarter were very good and right in line with our expectations. We delivered record revenues and nearly record PPNR per share, which was up 6% over the 2020 quarter. Joe will comment further on the quarter, but I would like to add that ex-PPP, we had solid growth in both our commercial and our retail portfolios, which were up 8% annualized for both Q3 and Q4. Looking at the whole of 2021, we had a really good year. Obviously, the results were favorably impacted by reserve releases and PPP. But carving those out, we still delivered solid earnings and absorbed nearly all of the margin erosion, which has not been insignificant. Deposit growth for the year was 15% with both customer count and average balances contributing. Loan growth for the entire year ex-PPP was 5%, with commercial flat and consumer up 8%. The strength of our financial services businesses continues. For the year, revenues were up 12% and pretax earnings up 20% over 2020, resulting in significant margin expansion. But also during the year, we closed on two benefits acquisitions and five smaller insurance businesses. The acquisition of the Elmira Savings Bank we announced in September is progressing well and we expect to close on that transaction in Q2. Elmira is a $650 million asset bank with 12 offices across the Southern Tier and Finger Lakes regions of New York State. It's a very nice franchise. It was a very good mortgage business that we expect will be $0.15 per share accretive on a full year basis, excluding acquisition expenses, so a very productive low-risk transaction. Looking ahead to the remainder of the year, we have significant energy and operating momentum right now in both our banking and non-banking businesses. Margin continues to be a headwind, but earning asset growth, the strength of our financial services businesses and credit are our tailwinds. We have begun to focus and invest in our commercial and retail businesses to improve organic execution to include people, systems and products. We will continue to invest in our digital channels and rationalize our analog channels as we did this year with the consolidation of 15 retail branches. Organic execution in our non-banking businesses has been tremendous, but we will continue to look to acquisition opportunities as well to grow the product breadth, talent, revenue and earnings strength of those businesses. And given the recent and expected ongoing challenges to the banking industry, we are hopeful to have a high-value acquisition opportunity this year as well. We are very much looking forward to 2022. Joe?

Thank you, Mark, and good morning, everyone. As Mark noted, the fourth quarter results were solid with fully diluted GAAP earnings per share of $0.80. The GAAP earnings results were $0.06 per share or 7% below the fourth quarter 2020 GAAP earnings and $0.03 per share or 3.6% below linked quarter third quarter results. Fully diluted operating earnings per share, which excludes acquisition-related expenses and other non-operating revenues and expenses, were $0.81 for the quarter, $0.04 per share or 4.7% below the prior year's fourth quarter and $0.02 per share or 2.4% below linked third quarter results. The decrease in operating earnings per share was driven by increases in the provision for credit losses, operating expenses, income taxes and fully diluted shares outstanding, offset in part by increases in net interest income and non-interest revenues between comparable quarters. The company reported a $2.2 million provision for credit losses in the fourth quarter of 2021 as compared to a $3.1 million net benefit and the provision for credit losses in the fourth quarter of 2020. Adjusted pretax pre-provision net revenue per share, which excludes the provision for credit losses, acquisition-related expenses and other non-operating revenues and expenses and income taxes, was $1.09 in the fourth quarter of 2021 as compared to $1.03 a year prior and $1.04 in the linked third quarter. On a full year basis, the company reported fully diluted GAAP and operating earnings per share of $3.48 and $3.49, respectively. These were up $0.40 per share or 13% and $0.25 per share or 7.7%, respectively, over 2020 results. Full year 2021 adjusted pretax pre-provision net revenue per share of $4.28 was up $0.02 per share over 2020 results. The company recorded total revenues of $159.7 million in the fourth quarter of 2021, a new quarterly record for the company, and a $9 million or 6% increase over the prior year's fourth quarter. The increase in total revenues between the periods was driven by a $2.3 million or 2.5% increase in net interest income, a $1.6 million or 11% increase in banking-related non-interest revenues and a $5.5 million or 13.2% increase in financial services revenues, offset in part by a $0.4 million decrease in the gain on debt extinguishment. Total revenues were up $2.8 million or 1.8% from third quarter 2021 results driven by a $3.1 million or 3.4% increase in net interest income. Total non-interest revenues accounted for 40% of the company's total revenues in the fourth quarter. The company's net interest income increased $2.3 million or 2.5% over the same quarter last year despite a significant decrease in its net interest margin. The company's taxable and net interest margin for the fourth quarter of 2021 was 2.74% as compared to 3.05% one year prior, a 31 basis point decrease between the periods. Comparatively, the company's tax equivalent net interest margin for the third quarter of 2021 was also 2.74%. Although net interest margin results remain below the pre-pandemic levels, the company's fourth quarter net interest income expanded over the prior year's fourth quarter and linked third quarter results driven by non-PPP-related organic loan growth, the deployment of excess liquidity from low-yield cash equivalents to higher-yield investment securities, earning asset growth and the reclassification of several large business lending relationships from non-accrual to accruing status. The company's tax equivalent yield on earning assets was 2.83% in the fourth quarter of 2021, matching third quarter results and 3.18% in the prior year's fourth quarter. During the fourth quarter of 2021, the company recognized $3.6 million of PPP-related interest income, including $3.3 million of net deferred loan fees. This compares to $3.5 million of PPP-related interest income recognized in the same quarter last year and $4.3 million in the third quarter of 2021. The company recognized $18.7 million of PPP-related interest income in 2021. The company's total cost of deposits remained low, averaging 8 basis points during the fourth quarter of 2021. Employee benefit services revenues for the fourth quarter of 2021 were $30.4 million, $3.7 million or 13.7% higher than the fourth quarter 2020. The improvement in revenues was driven by increases in employee benefit trust and custodial fees as well as incremental revenues from the third quarter acquisition of Fringe Benefits Design of Minnesota. Wealth management revenues for the fourth quarter of 2021 were up $8.5 million, up from $7.5 million in the fourth quarter of 2020. The $1 million or 13.4% increase in wealth management revenues was primarily driven by increases in investment management and trust services revenues. Insurance Services revenues of $8.5 million were up $0.9 million or 11.2% over the prior year's fourth quarter, driven by organic growth factors in the third quarter acquisition of a Boston-based specialty lines insurance practice. Banking non-interest revenues increased $1.6 million or 11% from $15 million in the fourth quarter of 2020 to $16.6 million in the fourth quarter of 2021. This was driven by a $1.2 million increase in mortgage banking income and a $0.5 million or 3% increase in deposit service and other banking fees. During the fourth quarter 2021, the company recorded a provision for credit loss of $2.2 million. This compares to a $3.1 million net benefit and the provision for credit loss for the fourth quarter 2020. The company reported net loan charge-offs of $1.7 million or an annualized 9 basis points of average loans outstanding during the fourth quarter of 2021 as compared to net charge-offs of $1.3 million or an annualized 7 basis points of average loans outstanding for the fourth quarter of 2020. Although economic forecasts remained generally stable during the fourth quarter of 2021 despite the rapid spread of the COVID Omicron variant, the company's allowance for credit losses increased $0.4 million, reflective of a $165.3 million increase in non-PPP loans outstanding and other qualitative factors. Comparatively, in the fourth quarter of 2020, economic forecasts had improved significantly from the prior quarter, resulting in a release of credit reserves in the quarter. On a full year basis, the company reported $2.8 million in net charge-offs or 4 basis points of average loans outstanding during 2021 as compared to $5 million in net loan charge-offs or 7 basis points of average loans outstanding during 2020. On a full year basis, the company recorded an $8.8 million net benefit. The provision for credit losses as the economic outlook and the loan portfolio's asset quality profile both steadily improved. The company recorded $100.9 million of total operating expenses in the fourth quarter of 2021 compared to $95 million of total operating expenses in the prior year's fourth quarter. The $5.9 million or 6.2% increase in operating expenses was primarily attributable to a $4.9 million or 8.5% increase in salaries and employee benefits, driven by increases in merit and incentive-related employee wages, staffing increases due to recent acquisitions, higher payroll taxes including increases in state-related unemployment taxes and higher employee benefit-related expenses. Acquisition-related expenses were also up $0.4 million between the comparable annual quarters due to the pending Elmira Savings Bank acquisition and other recent financial services acquisitions. The effective tax rate for the fourth quarter of 2021 was 23% and 21.4% on a full year basis, up from 20.9% and 20.1%, respectively, from the equivalent prior year periods. The increase in the effective tax rate was primarily attributable to an increase of certain state income taxes that were not included periods and a decrease in the proportionate tax-exempt revenues in relation to total revenues. The company pressed $15.5 billion in total assets during the fourth quarter, driven by the continued inflow of deposits, which increased $187.3 million or 1.5% from the end of the third quarter. Ending loans at December 31, 2021, were $7.37 billion, $91.1 million or 1.3% higher than the third quarter 2021, ending loans of $7.28 billion and $42.3 million or 0.6% lower than one year prior. Excluding PPP loan activity, ending loans increased $165.3 million or 2.3% during the fourth quarter of 2021 and $334.5 million or 4.8% on a full year basis. Loans outstanding net PPP loans have grown organically by more than 2% in both the third and fourth quarters of 2021. As of December 31, 2021, the company's business lending portfolio includes 722 PPP loans with a total balance of $87.9 million. The company expects to recognize the majority of its remaining net deferred PPP fees totaling $3.1 million over the first and second quarters of 2022. Although the company's loan yield and cash equivalents remained elevated totaling $1.72 billion at December 31, 2021, the company deployed a significant portion of its excess liquidity during the fourth quarter by purchasing $668 million of investment securities at a weighted average purchase yield of 1.41%. These activities continued into January with the purchase of an additional $757.6 million of investment securities at a weighted average purchase yield of 1.56%. The company's capital ratios remained strong in the fourth quarter. The company's Tier 1 leverage ratio was 9.09% at December 31, 2021, which is nearly two times the well-capitalized regulatory standard of 5%, while the net tangible equity and net tangible assets ratio was 8.69% at December 31, 2021. The company has an abundance of liquidity. The combination of the company's cash, cash equivalents, borrowing available in the Federal Reserve Bank and Federal Home Loan Bank and units available for sale investment securities portfolio provided $6.63 billion of immediately available source of liquidity at the end of the fourth quarter. At December 31, 2021, the company's allowance for credit losses totaled $49.9 million or 0.68% of total loans outstanding. This compares to $49.5 million or 0.68% of total loans outstanding at the end of the quarter of 2021 and $60.9 million or 0.82% of total loans outstanding at December 31, 2020. The $0.4 million increase in allowance for credit losses during the fourth quarter is reflective of non-PPP-related loan growth and other qualitative factors. Non-performing loans decreased in the fourth quarter to $45.5 million or 0.62% of loans outstanding, down from $67.8 million or 0.93% of loans outstanding at the end of the linked third quarter of 2021, at $76.9 million or 1.04% at the end of the fourth quarter of 2020. The significant decrease in nonperforming loans during the fourth quarter was primarily due to the reclassification of certain hotel loans from non-accrual status to accruing status. Loans 30 to 89 days delinquent totaled 0.38% of total loans outstanding at December 31, 2021. This compares to 0.47% one year prior, 0.35% at the end of the linked third quarter. We believe that the company's asset quality remains strong, but acknowledge that historically low levels of net charge-offs experienced in 2021 and generally benign credit environment were supported by the extraordinary federal and state government financial systems provided to businesses and consumers throughout the pandemic. Looking forward, we're encouraged by the momentum in our business. The company generated solid organic loan growth in 2021, especially in the third and fourth quarters. The financial services business has been growing and performing very well. Asset quality remains strong and we've been active in deploying our excess liquidity as interest rates have climbed in recent weeks. In 2022, we will remain focused on new loan generation. We'll continue to monitor serve markets, continue to seek additional opportunities to deploy excess liquidity. And lastly, to echo Mark's comments, we are pleased and excited to be partnering with Elmira Savings Bank. Elmira has been serving its communities for 150 years, and we will enhance our presence in 5 counties in New York, Southern Tier and Finger Lakes regions. We initially anticipated completing the acquisition in late first quarter 2022, but now expect to close in the second quarter of 2022. The integration efforts are going very well and we sincerely appreciate the efforts of our colleagues at Elmira Savings Bank to make the transition as seamless as possible for its customers. Thank you. I will now turn it back to Chad to open the line for questions.

Thank you. We will now begin the question-and-answer session. And the first question will be from Alex Twerdahl from Piper Sandler. Please go ahead.

Hey, good morning, guys.

Good morning, Alex.

Good morning, Alex.

First off, I was hoping that you could - I appreciate your comments on the investments that you're putting into the commercial and retail lending team. So I was hoping you could comment a little bit on the pipelines going into the beginning of the - for the sustainability of that 2-plus percent overall organic loan growth over the next couple of quarters?

Yes, Alex, it's Joe Serbun. I'll take that. I'll give you the commercial pipeline. I'll also give you the residential mortgage pipeline as well. So the pipeline for December 2021 ended at $348 million—excuse me, $335 million as compared to December of 2020, which was at $136 million. And then the anticipated fundings, right, loans that have been approved but not yet funded, for 2021, it's $348 million and for 2020, it was $212 million. And it was across all of the—or is across all of the regions. Some more than others, but everybody seems to be participating in the activity. And much of that is coming by way of CRE or multifamily, some self-storage kind of activity, C&I activity, so a variety of lending opportunities. On the consumer side, the residential mortgage pipeline is at 141, which is a little lighter than where we were at the same time last year at 165, but I'm not concerned. It's more of a reflection of our improved process, so we're getting things through the pipe and through the funnel faster, which, therefore, will not surprise, if we're not at the 160 plus. To date, our—the number of days that we're turning things through are improving. So I feel really comfortable with the activity in the residential pipeline as well.

Great. And then can you comment a little bit on some of the blended yields on new loans? And was there some in the fourth quarter? Was there some recognition of interest that—from those loans that were on non-accrual that returned to performing status?

Yeah, Alex, this is Joe Sutaris. I can take that question. So the blended yield of new volume in the fourth quarter was about a 3.30%, give or take, with our blended current book yield, excluding PPP in the fourth quarter of about 4%. So we are putting new loans on at rates below the existing yields. But obviously, the volume and growth have been very good in the last couple of quarters, but we're putting new volume on at a 3.30%. With respect to the non-accrual loans that moved to accrual status during the quarter, we booked approximately $1 million of interest income related to those loans coming—moving from non-accrual status to accrual status in the quarter.

And a final question. As it relates to the liquidity deployment, how do you think about that? Is it in terms of sort of a target liquidity level or deposit balances or you just look to see where the loan growth shakes out and then sort of stop up the rest with security balances? Or maybe give us a sense, I know you said that you did some purchases in January. But kind of how should we think about the pace of liquidity deployment over the next couple of quarters?

Yeah. So we still have some modest amount of, I'll call them, open strategies for some of the terms that we like to hit in the securities portfolio. So if we stay at those levels, I think it's fair to expect another, call it, $0.5 billion or so to be invested over the first part of the year. But to your point, yes, we'll be monitoring the loan portfolios as well to see what the growth expectations are there and obviously monitoring where the rate curve is going as well. So what we're really trying to target, Alex, is also to build a nice cash flow ladder on the securities portfolio going out in the future period. So if there are other opportunities, when and if rates stay higher and move higher, we'll have opportunities to reinvest some of those on a going-forward basis. So we probably will maintain some levels of liquidity, continue to maintain higher levels than we have certainly pre-pandemic, but we're also looking to deploy—continue to deploy some of that additional liquidity in the first half of the year.

Great. Thanks for taking my questions.

You’re welcome.

And the next question will be from Russell Gunther from D.A. Davidson. Please go ahead.

Hi. Good morning, guys. I just had a quick follow-up on the growth conversation. I appreciate the pipelines that were provided. But as was mentioned, really strong growth in the back half of the year. So could you give us a sense for what your organic growth expectation is for '22 and what some of the asset class drivers would be? And then just particularly curious as to thoughts around retaining single-family at the current point.

Russell, I'll take that. It's Joe Serbun. So the overall expectations are that we're going to grow in the mid-single digits overall. And the expectation on the commercial side is that we will grow. And I mentioned some of the asset classes earlier that we are focused on and have been focused on. And then on the two retail products or two retail lines, the installment loan or more importantly, the indirect loans as well as the residential mortgages, we expect them to continue to grow, but probably at a slower pace than they have historically. And we have—we've got some inventory challenges with houses and cars. And of course, the anticipated rate hikes and what the impact—what kind of headwinds they may provide us. So that's what we expect for overall growth in portfolio growth. And we do expect to retain our mortgages on the balance sheet.

I would say, Russell, it's Mark. Russell, it's Mark. I just wanted to add, in my prepared comments, we've kind of begun to focus and invest in our commercial and our retail businesses to improve organic execution to include people, systems, and products. So we are investing in our mortgage business in different ways around products, around people, around our model, our mortgage model, which has always been more branch-oriented and less mortgage originator focused. And so we're going to reposition that a bit. We are also investing in our commercial business in different ways in some of the markets that we're already in with improved resources, also pursuing other adjacent markets that have superior growth potential characteristics relative to our existing markets. So we are making an effort this year to do a better job and grow better over time by investing in our organic execution ability. Joe had mentioned kind of the dates to close on the mortgage side. We've added some resources to our mortgage business in the back office to try to keep those days down because in anticipation of some of these investments that we're making in the mortgage business around people and our model, we're going to—we expect more throughput. And so we're going to need to have more backroom capabilities, which we've already started to ramp up a bit. So that explains, as Joe said, why the pipeline is down with the average days to close is also down. So we're getting through the follow-up quicker. So I just wanted to follow up with that comment on kind of the investments we're going to be making in—across our commercial and mortgage business here in 2022.

Appreciate it, Mark. Thank you both for the follow-up thoughts there. And then switching gears to the margin that you mentioned in prepared remarks, it remains a headwind. You guys detailed the kind of new money yield versus what's coming off. I'm curious how you balance that with what the Fed might do and the impact of rate hikes on your outlook. So could you share kind of what you're expecting from a Fed rate hike perspective and how each 25 basis points might impact the margin or NII, however you guys want to take a crack at that? Thank you.

Yes. Russell, this is Joe Sutaris. I'll take a shot at that. So for—on a full year basis, between variable rate loans and loans that effectively principal payments and prepayments of loans, we expect a little over $2 billion to $2.5 billion of, we'll call it, repricing opportunity on a full year basis. So when and if the Fed does raise rates, and I think we're kind of in the camp of everyone else, which is we could see three rate hikes this year, maybe some more in 2023. We'll have the opportunity to climb the curve if the long end goes up or the middle part of the curve goes up a bit just because that's where most of our new loan generation is priced. And obviously, we have some favorable rate loans that will immediately lift off the floors, most of them. In the next 12 months on the variable rate loan side, we have about $850 million that we expect to reprice in the next 12 months and another about $800 million in 2023 in the variable portfolio. So I think we're going to have some opportunities to expand margin when and if rates do go up, and we are asset-sensitive. I'll also remind you that—and a group that our deposit beta in the last several cycles ticked back to the '15 through '18 cycle was very close to 0 for most of the cycle. So when and if rates go up, we would expect the margin outcome to get a bit better for us.

Great. Thank you, Joe. I appreciate it. And then just last one, switching gears. I appreciate your guys' thoughts on the revenue growth outlook within the employee benefits line and the trends in activity you're seeing for '22. And then I'll step back. Thank you.

Yes. Well, it was double-digit growth this year and the top line, I think it was 12%. The pretax earnings line was 20%. And I think we also achieved that last year as well, double digits on top and bottom line. Every year, we do that. We always say to ourselves at what point does this slow down, and it doesn't seem to. So I'm optimistic we can continue to grow the top line at double digits. I think we're pretty well positioned to do that, actually heading into 2022. Some of those revenues are market-dependent. And so there's some impact. If you—if we get a significant slide in the market that would impact some of those revenues. On the other hand, the insurance market is hardening. And so you're going to get that benefit from the hardening of the insurance market. But the benefits business, just we have—we're in a sweet spot right now in our benefits business, where we have the ability to serve larger players. And some of those are very large financial services businesses, which are coming to us to outsource their administration and recordkeeping custodial—not custodial, but trust needs. And so we're getting incoming opportunities of significance in that space right now, which is great. We've got some partnerships with some very large national and multinational financial services organizations that have come to us to help solve some of their needs and issues as well. So there's—in addition to just organic growth in that business, we're in a really good spot in terms of the scale of that business and our capacity to serve much larger, very large national and multinational financial services firms in terms of what we do and the products and services and capabilities we have in those businesses. So I would expect that business will grow double digits next year as well. So we'll keep investing in those businesses. They're great businesses. The run rate this year should be about $200 million in revenues for our non-banking businesses. And we think that '22 will be also a really good year across the board.

I appreciate it, Mark. Thank you for taking my question.

Thanks, Russell.

And the next question will be from Matthew Breese from Stephens Inc. Please go ahead.

Good morning. Sorry, just going back to the rate discussion. I was hoping you could give us a sense for the duration of the securities book? And what percentage of securities are floating rate, if any? And then a tack on, just that 100 basis point net interest income sensitivity model in your 10-Q, what deposit beta are you baking in?

Yes. I'll take that, Matt. This is Joe Sutaris. So the effective duration of the portfolio is just over 7 years, fairly well-laddered. It's almost all fixed rate securities with bullet-type security, a lot of treasury securities. We do have some MBS securities that provide variable cash flow, but they're not variable instruments. They're just the cash flows will change over time depending on the prepayment levels. But it's—I think it's fairly well-laddered. So we will have some opportunities, I think, to reprice and purchase new securities as time passes and those run off. I'm sorry, Matt, what's your second question? Can you repeat that?

Yes, in your prior comment, we discussed as a reminder, for the last hiking cycle, the deposit beta was close to zero. And I was curious in your 10-Q where you showed the net interest income sensitivity. If behind that data, are you running a 0% beta? Or what are you assuming there?

We have some modest data built in, Matt, as opposed to the 0 through the whole cycle, but it's very modest, less than - probably less than a 10 in the model. Just based on our past experience, we had very little beta, and we would expect that to be similar for this cycle as well. And I would just add that the whole industry is awash in liquidity. So from a competitive standpoint as well, I expect that we might not be as competitive in this cycle for deposits, it's early in the cycle as it was in the last cycle. So I think our ability to keep deposit rates kind of near their current levels in an up 100 or 200 at least for 12-month period is very reasonable. It's a reasonable expectation.

Got it. Okay. My next one is industry-wide, we're starting to see some particularly larger banks change deposit service fees, mostly tied to overdraft and NSF. I think there's some fear that the CFPB could be just a little bit more impactful over the coming months and years. Just curious how you look at deposit service fees, if you feel like there's anything at risk? And if so, how would you kind of outline that?

Yes. Matt, I think we're— I think we're in a good position from the standpoint of our checking deposit base. Historically, going back—gosh, it's been about 15 years. We've been a free shop per se for our retail customers and kind of a low activity charges on—even on our commercial businesses. So if we modify practices going forward for forward draft outcomes, we potentially could go backwards in terms of the revenue line item. But I think we also have the ability to make up some of that in other areas of deposit service fees. So I feel like we're fairly well positioned. We are certainly evaluating all of our offerings and looking and keeping an eye on all of the changes in the regulatory environment. So it's certainly on our radar and we expect this year, we will probably make some modifications to our offerings. But we also think we're well positioned. We're aware of some other institutions that certainly had, call them, monthly maintenance fees per se and overdraft fees that were significant. And at least we're in a position where I think our maintenance costs and activity fees are lower than some of our peers, so we might have some ability to make up some of that lost revenue as we change our product set.

Great. Okay. Last one for me. Just on share repurchase. Looking back, I can't remember if—in the years I've covered you, if I remember a quarter where you've actually repurchased stock. But I was hoping you could just walk through what triggered that capital deployment strategy? Was it valuation-driven? Or was it more from the standpoint that you executed on everything else, including loan growth, M&A, securities growth, things like that?

Yes, Matt, it's Mark. I'll address that. I agree with you. Historically, we haven't repurchased much stock. I've wanted to tidy up the shares issued under the employee equity for some time. While it's not a large amount, it's more of a housekeeping measure. We finally took the steps to do it, and you can expect to see this in the future. There's no specific strategy behind it; it's simply a matter of maintaining good practices and managing the accumulation of shares tied to our equity plans over time. You will likely continue to see this going forward.

Okay. Do you think we should expect that like a once-a-year cleanup?

I think, Matt, we pick our spots over the year and do it in probably incremental bites over the year. But I think in effect, on a full year basis, we're looking to just clean up the creep, which is 300,000 to 500,000 shares depending on the year, maybe a little less.

Got it. Okay, great. I appreciate taking my questions. Thank you.

Thanks, Matt.

And the next question will come from Chris O'Connell with KBW. Please go ahead.

Good morning, gentlemen. So just wanted to start off with the expense base and you guys obviously have rationalized the branch network quite a bit over the past 12 months or so. And it was just outside of the Elmira deal, I was just wondering about how much of that opportunity is left? And in general, how you think about organic expense growth into 2022.

Yes. Chris, that's a good question, fair question. So our run rate the last couple of quarters on operating expenses was about $100 million. I would expect that as we look into 2022 to potentially add a couple of hundred—excuse me, a couple of million dollars to that result. And certainly, Q1 and into Q2, excluding the Elmira opportunity, we tend to give our merit-based increases at the beginning of the year. So—and we also have higher payroll taxes in the first quarter. So I think you'll see most of that sort of achieved in the first quarter. So a couple of million dollars on top of what we did in the last couple of quarters. And then that sort of becomes our run rate. So with wage pressures, we would typically have, I'll call it, a 3% kind of expectation around average expenses growth; it's probably closer to 4% to 5% with—certainly with wage pressures in the market. We're also investing in some loan generation resources, which will add a little bit to cost as we move ahead. But nothing too far out of the ordinary, just a bit higher on the expected run rate. With respect to additional opportunities to rationalize the business, I think we'll continue to look at those. They do take a little time to sort of bake into the OpEx. You need to announce any sort of rationalization and execute on them. And then ultimately, we realize those gains over the future periods. I'll just say that, particularly the occupancy and equipment expense line item has been pretty flat in the last couple of years, particularly because of some of the consolidation activities. And the last thing I will note is that our—we continue to invest in digital technologies. So the expectation is that we're going to continue to do that. The world is changing, and we're trying to keep pace with that change. So the telecommunications and IT expense line item could creep up a bit more than kind of the core run rate for expenses, but both the occupancy and those types of costs will tend to be probably below the core run rate.

Great. That's helpful. And then secondly, you guys mentioned in the prepared comments that you would be looking to do potentially another deal in the next year if the opportunity presents itself. If you could just give a reminder of what would be the ideal size and geographical landscape or net add for loan generation capabilities, et cetera, for under—for an ideal transaction, that would be great.

Sure, Chris. It's Mark. I think $1 billion to $2 billion is a good sweet spot for us either within our footprint or contiguous to our footprint, high-quality franchise, good culture, not a fixer-upper or something that has valuable assets that are underappreciated in the market that could be a mortgage business, that could be wealth, which is interesting to me. If you look at some of the banks out there in that size base at least in and around our markets, the Northeast generally, there's some really, really good $1 billion to $2 billion banks with really good wealth businesses that are trading at 9x earnings. So I think there's a lot of opportunity. And I think banks like that are going to have a challenging time getting a multiple in the market for a variety of reasons. And so I think with our currency and kind of background and expertise and history of value creation for shareholders, including those who we partner with, I think there's a good opportunity in 2022 to find something that fits that kind of ideal criteria.

That's helpful color. Thank you. And then what about on the non-bank side within the fee businesses? Can you just give us an update on—you inked a couple of smaller acquisitions over the past couple of quarters there. Is there still good opportunities presenting themselves? Or is it being a little bit priced out due to some of the entrance of PE competition in those spaces?

Yes. I think the insurance space is pretty still—that's a very, very fragmented market. And in that space, scale makes a difference. So I think we'll continue to have opportunities in the insurance space. We've never done a lot in wealth in terms of larger acquisitions because they tend to be overly expensive and you don't really own the assets. So we're a little bit cautious in the wealth space. What we do in the wealth space is we bring on small offices, like get 1 or 2 or 3 folks on the team, and they have a couple hundred million, and we'll bring them on. It's not a—you could call it an acquisition, but—so we've done some of those. In fact, I think you're looking 1 or 2 right now along those lines. So most of the stuff on the wealth side is not what you consider kind of traditional larger acquisitions. They're more smallish shops that are jumping on to our platform, and there's a monetization event for them as part of that, sometimes structured as a sign-on bonus kind of thing. In the benefit space, the couple we did last year were both negotiated transactions. They were not bid out as PE. I think we have a lot of relationships across the U.S. And in Puerto Rico, we have the largest benefits provider in the Commonwealth of Puerto Rico. So we have a lot of relationships. And not everybody wants to sell to PE for obvious reasons. So I think we'll continue to have opportunities. I think we will probably see other opportunities where we get to go up for an asset that gets shopped to the broader world, in which case, we will have a harder time beating PE just frankly, based on price. It was really a particularly high-value asset for us for some reason. But we'll keep playing; we've been close a couple of times. So we'll see—I mean, one of the challenges, frankly, is the investment bankers for the PE firms kind of like to sell to each other. And they like to do business with the PE firms because there's a lot more business to do with them versus for us where we're not quite as active. We're not in the business of buying and selling assets. So the investment bankers kind of favor the PE bids. And so that makes it a little bit more challenging. So—but I mean, we understand the field of play, and we do our best to play in it without being undisciplined. But I think the real opportunity is going to be focusing on those negotiated transactions where we have good relationships and good assets as well as this opportunity to kind of reach up market and talk to some of these bigger financial services players and leverage off their scale to create opportunities for us.

Great. And just on the credit side, it's good to see the big chunk in non-accruals coming back on to accrual this quarter. And as you guys look ahead over the next quarter or two, is there any other significant chunks or kind of clips of those six-month periods that are coming up here that you can see another sizable chunk of the non-accruals kind of coming back on?

Chris, this is Joe Serbun. Yes, the 18 stuff that we moved were the obvious ones. There's a couple of others that are not—none of them are of significant size, first of all. And secondly, there's a few that didn't have, if you will, six months' worth of performance underneath that made us comfortable enough to move them from non-accrual to accrual. But I think that as we go through the second quarter, we'll re-evaluate them. And as we go through the third quarter, we'll do the same thing. And if it warrants moving on, we'll move them. But there's nothing, there's no large number of assets that we're looking to move. The biggest move took place in December.

Understood. And last one, just a little cleanup. How are you guys seeing the tax rate for next year?

The tax rate? I think it's fair to expect somewhere between, call it, 22.5% and 23.5% on a going-forward basis. We've had certain states that enacted higher rates, and so we're dealing with that. Also, if you look at the balance of our earning assets, there's more assets deployed in taxable assets than there have been in the past. So I would expect the rate to kind of hover between, call it, 22.5% and 23.5%, potentially a little bit lower. But that's, I think, a fair expectation for 2022.

Thanks for taking my questions.

Thanks, Chris.

The next question will come from Erik Zwick from Boenning & Scattergood. Please go ahead.

Thanks. Good morning, guys. Most of my questions have been answered. Just one, and I apologize if I missed it in the opening commentary. What was the driver of the decision to move the closing of Elmira to 2Q?

I don't know if it's so much a decision on our part; it's just on expectations around where we see the trend of the regulatory approval process going. So we decided to push it off two months further out just based on the progress and the dialogue with the regulators. I mean, there's nothing of note or concern. I think it's just right now with the administration and the pending appointments of some of the agency leadership and the—I’ll call it, the interest of all of the regulatory agencies on every single transaction, even those who have a, let's call it, tangential involvement, it's a lot more slow everyone out there, that's just the trend right now. So we just decided to push it out a couple of months to be sure.

Got it. That makes sense. And what month within 2Q are you targeting at this point?

We're looking at May right now.

Perfect. Thanks, that’s all I had today. Appreciate.

Thanks, Erik. The next question will be from William Wallace from Raymond James. Please go ahead.

Thank you. Good morning, guys. How are you?

Good. Good morning, William.

I have one follow-up question to Matt's line of questioning around deposit service fees. If I look at that line, as a percentage of average core deposits, pre-COVID, you guys were running kind of 20 to 22 basis points per quarter. And then like the industry that dropped once COVID hit with all the stimulus, et cetera, but yours have been kind of stubborn and not recovering like we've seen other banks. So I'm curious if you've analyzed the trends in your deposit portfolio and if you have any expectation of what that deposit service fee line might look like moving forward through the next several quarters or a couple of years?

Yes. Wally, this is Joe Sutaris. I can take that. So the advantage that we've had on a core funding base over a lot of years is really our core deposit base. And so our ability to track demand deposits, if you will, was very strong over a long period of time. We did a lot of branch acquisitions over time that brought in good core deposit relationships. When the stimulus funds that came in, most of that —those funds came into consumer checking accounts. And so just on that basis alone, our core deposit base grew substantially, probably more so than many of our peers. And those balances have continued to be substantial and high, if you will, by historical standards. So in that cycle, effectively, the number of overdraft occurrences just and other fees simply came down because the balances were higher. And so I would expect that as—assuming that there's some of that money gets spent by consumers over time and balances come down, we would be kind of moving back toward a more historical but probably not getting back to the levels we were certainly pre-COVID. And as we also mentioned, we are evaluating the offerings, and the offerings potentially could change in 2022. And our expectation is that we do have some ability to potentially get some other deposit fees that are not NSF and overdraft-related just because we've offered a free checking product suite and low transaction fees, if you will, over a long and extended period of time.

Okay. Thank you very much. That's very helpful. And then one follow-up for you. I think it was Mark that was talking about the expense base, and it sounded like you were saying we're starting off the year around $102 million or so, and then you'd think that there'd be 4% to 5% kind of cost of living expense, the pressures on top of that. Is that—did I interpret your commentary correctly?

Yes. Wally, this is Joe Sutaris. I had made that comment. So we were running about $100 million in the expenses the last—the prior two quarters. And typically, what we have is we have an adjustment in the first quarter because merit-based increases go through, payroll taxes kick in, FICA taxes kick in. So we typically move up a bit. And my expectation is that it will be a couple of million dollars from Q4 to Q1. And then on a run rate basis, on a going-forward basis, I think a 4% to 5% expectation on an annualized basis is a more reasonable expectation, whereas in the past, it potentially could be 2% to 4%. But just obviously, there's inflation in the market. There's various wage pressures. So I think our core run rate in terms of just growth is going to be just a little bit higher than it has been certainly in the past. And we're also investing in resources to originate new loans and grow the loan portfolio and have better organic execution on the loan side as well.

Okay. Yeah, thank you very much. I appreciate it. That’s all I had. Thanks, guys.

Thanks.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tryniski for any closing remarks.

No further remarks from me. Thank you. Thank you all for joining us this morning, and we will talk again after the end of the first quarter. Thank you.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.