What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 160 added, 192 removed, 842 unchanged (29% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30,

Cash and cash equivalents

10 unchanged sentences

Total deposits

Overnight Federal Reserve Bank borrowings

Overnight borrowings

Securities sold under agreement to repurchase, short-term

11 unchanged sentences

Accumulated other comprehensive loss

Treasury stock, at cost ( 451,090 shares, including 133,575 shares held by deferred compensation arrangements at June 30, 2022 and 214,374 shares including 146,860 shares held by deferred compensation arrangements at December 31, 2021, respectively)

Treasury stock, at cost ( 451,992 shares, including 134,477 shares held by deferred compensation arrangements at September 30, 2022 and 214,374 shares including 146,860 shares held by deferred compensation arrangements at December 31, 2021, respectively)

Deferred compensation arrangements ( 134,477 and 146,860 shares, respectively)

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Interest income:

28 unchanged sentences

Business development and marketing

Litigation accrual

Acquisition expenses

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Pension and other post retirement obligations:

4 unchanged sentences

Other comprehensive income related to pension and other post-retirement obligations, net of taxes

Unrealized (losses) gains on available-for-sale securities:

Net unrealized (losses) gains arising during period, gross

Other comprehensive (loss) income related to unrealized (losses) gains on available-for-sale securities, net of taxes

Other comprehensive (loss) income, net of tax

Unrealized losses on available-for-sale securities:

Net unrealized losses arising during period, gross

Other comprehensive loss related to unrealized losses on available-for-sale securities, net of taxes

Other comprehensive loss, net of tax

Comprehensive (loss) income

September 30,

Accumulated Other Comprehensive Loss By Component:

7 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended June 30, 2022 and 2021

Three months ended September 30, 2022 and 2021

(In Thousands, Except Share Data)

Comprehensive

Balance at March 31, 2022

Balance at June 30, 2022

Other comprehensive loss, net of tax

3 unchanged sentences

Stock-based compensation

Distribution of stock under deferred compensation arrangements

Treasury stock purchased

Treasury stock issued to benefit plans, net

Treasury stock purchased for benefit plans, net

Balance at September 30, 2022

Balance at June 30, 2021

Balance at March 31, 2021

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Dividends declared:

2 unchanged sentences

Stock-based compensation

Treasury stock issued to benefit plans, net

Balance at June 30, 2021

Treasury stock purchased for benefit plans, net

Balance at September 30, 2021

See accompanying notes to consolidated financial statements (unaudited).

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Six months ended June 30, 2022 and 2021

Nine months ended September 30, 2022 and 2021

(In Thousands, Except Share Data)

9 unchanged sentences

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at June 30, 2022

Treasury stock purchased for benefit plans, net

Balance at September 30, 2022

Balance at December 31, 2020

5 unchanged sentences

Distribution of stock under deferred compensation arrangements

Treasury stock issued to benefit plans, net

Balance at June 30, 2021

Treasury stock purchased for benefit plans, net

Balance at September 30, 2021

See accompanying notes to consolidated financial statements (unaudited).

2 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

7 unchanged sentences

Income from bank-owned life insurance policies

Net gain on sale of loans and other assets

Net gain on sale of assets

Change in other assets and other liabilities

2 unchanged sentences

Proceeds from maturities, calls, and paydowns of available-for-sale investment securities

Proceeds from maturities and redemptions of equity and other investment securities

Proceeds from maturities and redemptions of equity and other securities

Purchases of available-for-sale investment securities

( 1,348,400 )

( 1,284,544 )

Purchases of equity and other securities

1 unchanged sentence

Cash received (paid) for acquisitions, net of cash acquired of $ 84,988 and $ 541 , respectively

Proceeds from sales of premises and equipment, net

Purchases of premises and equipment, net

3 unchanged sentences

Financing activities:

Net (decrease) increase in deposits

Net increase in overnight Federal Reserve Bank borrowings

Net decrease in securities sold under agreement to repurchase, short-term

Net increase in deposits

Net increase in overnight borrowings

Net increase in securities sold under agreement to repurchase, short-term

Payments on other Federal Home Loan Bank borrowings

Payments on subordinated debt held by unconsolidated subsidiary trusts

Issuance of common stock

Proceeds from the issuance of common stock

Purchases of treasury stock

2 unchanged sentences

Withholding taxes paid on share-based compensation

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Change in cash and cash equivalents

8 unchanged sentences

Transfers from loans to other real estate

Transfers from premises and equipment, net to other assets

Acquisitions:

4 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 2022

September 30, 2022

BASIS OF PRESENTATION

The interim financial data as of and for the three and six months ended June 30, 2022 is unaudited;

The interim financial data as of and for the three and nine months ended September 30, 2022 is unaudited;

however, in the opinion of Community Bank System, Inc.

9 unchanged sentences

The Company also recognized a $ 3.9 million acquisition-related provision for credit losses for loans acquired in the transaction.

Revenues of approximately $ 2.4 million and direct expenses of approximately $ 0.6 million from the Elmira branch network were included in the consolidated statements of income for the three and six months ended June 30, 2022.

The Company expects to incur additional certain one-time, transaction-related costs in 2022 in connection with the Elmira acquisition.

Revenues of approximately $ 4.8 million and $ 7.2 million and direct expenses of approximately $ 1.2 million and $ 1.8 million from the Elmira branch network were included in the consolidated statements of income for the three and nine months ended September 30, 2022, respectively.

The Company incurred certain one-time, transaction-related costs in 2022 in connection with the Elmira acquisition.

On January 1, 2022, the Company, through its subsidiary OneGroup NY, Inc.

2 unchanged sentences

The effects of the acquired assets have been included in the consolidated financial statements since that date.

Revenues of approximately $ 0.3 million and $ 0.6 million and direct expenses of approximately $ 0.1 million and $ 0.2 million were included in the consolidated statements of income for the three and six months ended June 30, 2022, respectively.

Revenues of approximately $ 0.2 million and $ 0.8 million and direct expenses of approximately $ 0.1 million and $ 0.3 million were included in the consolidated statements of income for the three and nine months ended September 30, 2022, respectively.

On August 2, 2021, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets and liabilities of the Thomas Gregory Associates Insurance Brokers, Inc.

2 unchanged sentences

The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

Revenues of approximately $ 0.5 million and $ 2.0 million and direct expenses of approximately $ 0.4 million and $ 0.7 million from TGA were included in the consolidated income statements for the three and six months ended June 30, 2022, respectively.

Revenues of approximately $ 1.0 million and $ 3.0 million and direct expenses of approximately $ 0.4 million and $ 1.1 million from TGA were included in the consolidated income statements for the three and nine months ended September 30, 2022, respectively.

The acquisition of TGA includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on the future retained revenue of TGA over a three-year period.

7 unchanged sentences

Based on the results of the revaluation, the Company recorded a $ 0.5 million acquisition-related contingent consideration adjustment as of June 30, 2022 in the consolidated statements of income related to the TGA acquisition, for an adjusted fair value of $ 2.0 million at June 30, 2022.

No adjustments were made to the fair value of the contingent consideration related to the TGA acquisition during the three months ended September 30, 2022.

On July 1, 2021, the Company, through its subsidiary Benefit Plans Administrative Services, Inc.

3 unchanged sentences

The effects of the acquired assets have been included in the consolidated financial statements since that date.

Revenues of approximately $ 1.0 million and $ 2.5 million and direct expenses of approximately $ 1.1 million and $ 2.2 million from FBD were included in the consolidated statements of income for the three and six months ended June 30, 2022, respectively.

Revenues of approximately $ 0.8 million and $ 3.3 million and direct expenses of approximately $ 1.0 million and $ 3.2 million from FBD were included in the consolidated statements of income for the three and nine months ended September 30, 2022, respectively.

The acquisition of FBD includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on the future retained revenue of FBD over a two-year period.

8 unchanged sentences

Based on the results of the revaluation, the Company recorded a reduction to the fair value by $ 0.1 million as of June 30, 2022 as an acquisition-related contingent consideration adjustment in the consolidated statements of income related to the FBD acquisition, for an adjusted fair value of $ 1.5 million at June 30, 2022.

No adjustments were made to the fair value of the contingent consideration related to the FBD acquisition during the three months ended September 30, 2022.

On June 1, 2021, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets and liabilities of NuVantage Insurance Corp.

2 unchanged sentences

The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

Revenues of approximately $ 0.3 million and $ 0.6 million and direct expenses of approximately $ 0.3 million and $ 0.6 million from NuVantage were included in the consolidated statements of income for the three and six months ended June 30, 2022.

Revenues of approximately $ 0.3 million and $ 0.9 million and direct expenses of approximately $ 0.3 million and $ 0.9 million from NuVantage were included in the consolidated statements of income for the three and nine months ended September 30, 2022.

The assets and liabilities assumed in the acquisitions were recorded at their estimated fair values based on management’s best estimates using information available at the dates of the acquisitions, and are subject to adjustment based on updated information not available at the time of the acquisitions.

Accrued income taxes, deferred taxes, certain fixed assets and other real estate owned associated with the Elmira acquisition were recorded on a provisional basis and could vary from the actual recorded balance once finalized.

During the first quarter of 2022, the carrying amount of other liabilities associated with the FBD acquisition was adjusted as a result of an adjustment to working capital based on the purchase agreement.

Accrued income taxes and deferred taxes associated with the Elmira acquisition were recorded on a provisional basis and could vary from the actual recorded balance once finalized.

During the first and third quarter of 2022, the carrying amount of other liabilities associated with the FBD acquisition was adjusted as a result of an adjustment to working capital based on the purchase agreement, for a total net increase to goodwill of $ 0.1 million.

During the third quarter of 2022, the carrying amount of premises and equipment, other assets, and other liabilities related to the Elmira acquisition were adjusted upon receipt of new information as a result of adjustments to fair value and deferred income taxes.

The adjustments resulted in a net decrease of $ 4.9 million to goodwill recognized from the Elmira acquisition at September 30, 2022.

The acquisitions generally expanded the Company’s geographic presence in New York, Florida, Massachusetts, and Minnesota, and management expects that the Company will benefit from greater geographic diversity and the advantages of other synergistic business development opportunities.

26 unchanged sentences

Certificate of deposit accounts were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates.

Borrowings assumed with the Elmira acquisition included FHLB borrowings with a fair value of $ 17.6 million, with maturity dates ranging from January 2023 through March 2027 and a weighted average interest rate of 2.48 %.

Borrowings assumed with the Elmira acquisition included Federal Home Loan Bank of New York (“FHLB”) borrowings with a fair value of $ 17.6 million, with maturity dates ranging from January 2023 through March 2027 and a weighted average interest rate of 2.48 %.

The core deposit intangibles related to the Elmira acquisition are being amortized using an accelerated method over an estimated useful life of eight years .

5 unchanged sentences

Direct costs related to the acquisitions were expensed as incurred.

Merger and acquisition integration-related expenses were $ 4.0 million and $ 4.3 million during the three and six months ended June 30, 2022, respectively, and were immaterial during the three and six months ended June 30, 2021.

Merger and acquisition integration-related expenses were $ 0.4 million and $ 4.7 million during the three and nine months ended September 30, 2022, respectively, and were $ 0.1 million during the three and nine months ended September 30, 2021.

These amounts have been separately stated in the consolidated statements of income.

Supplemental Pro Forma Financial Information

The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the three and six months ended June 30, 2022 and 2021.

The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the three and nine months ended September 30, 2022 and 2021.

The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the year presented, nor is it indicative of the Company’s future results.

1 unchanged sentence

The pro forma information set forth below reflects the historical results of Elmira combined with the Company’s consolidated statements of income with adjustments related to (a) certain purchase accounting fair value adjustments and (b) amortization of core deposit intangibles.

Acquisition-related expenses totaling $ 4.0 million and $ 4.3 million for the three and six months ended June 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021.

Acquisition-related expenses totaling $ 0.4 million and $ 4.7 million for the three and nine months ended September 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021.

Pro Forma (Unaudited)

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

(000’s omitted)

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Total revenue, net of interest expense

7 unchanged sentences

The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances.

As of June 30, 2022, $ 31.4 million of accounts receivable, including $ 8.7 million of unbilled fee revenue, and $ 2.4 million of unearned revenue, was recorded in the consolidated statements of condition.

As of September 30, 2022, $ 32.7 million of accounts receivable, including $ 9.9 million of unbilled fee revenue, and $ 3.5 million of unearned revenue, was recorded in the consolidated statements of condition.

As of December 31, 2021, $ 31.6 million of accounts receivable, including $ 9.1 million of unbilled fee revenue and $ 2.2 million of unearned revenue, was recorded in the consolidated statements of condition.

Premises and Equipment Held for Sale

Premises and equipment designated as held for sale totaling $ 5.1 million at September 30, 2022 are included in other assets on the consolidated statements of condition and are carried at the lower of cost or fair value.

Recently Adopted Accounting Pronouncements

26 unchanged sentences

INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities as of June 30, 2022 and December 31, 2021 are as follows:

June 30, 2022

The amortized cost and estimated fair value of investment securities as of September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022

December 31, 2021

14 unchanged sentences

A summary of investment securities that have been in a continuous unrealized loss position is as follows:

As of June 30, 2022

As of September 30, 2022

Less than 12 Months

8 unchanged sentences

Total available-for-sale investment portfolio

Equity and other Securities:

Equity securities, at fair value

Total equity and other securities

As of December 31, 2021

12 unchanged sentences

The majority of the obligations of state and political subdivisions carry a credit rating of A- or better as well as carry a secondary level of credit enhancement.

The Company holds two corporate debt securities in an unrealized loss position, which are currently rated A- or better, and the issuer of the securities both show a low risk of default.

The Company holds two corporate debt securities in an unrealized loss position, which are currently rated A- or better, and the issuers of the securities both show a low risk of default.

The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to recovery of the amortized cost.

1 unchanged sentence

The unrealized losses in the portfolios are primarily attributable to changes in interest rates.

As such, management does not believe any individual unrealized loss as of June 30, 2022 represents credit losses and no unrealized losses have been recognized in the provision for credit losses.

Accordingly, there is no allowance for credit losses on the Company’s available-for-sale investment portfolio as of June 30, 2022.

Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 20.2 million at June 30, 2022 and is excluded from the estimate of credit losses.

The amortized cost and estimated fair value of debt securities at June 30, 2022, by contractual maturity, are shown below.

As such, management does not believe any individual unrealized loss as of September 30, 2022 represents credit losses and no unrealized losses have been recognized in the provision for credit losses.

Accordingly, there is no allowance for credit losses on the Company’s available-for-sale investment portfolio as of September 30, 2022.

Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 18.5 million at September 30, 2022 and is excluded from the estimate of credit losses.

The amortized cost and estimated fair value of debt securities at September 30, 2022, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

8 unchanged sentences

Government agency collateralized mortgage obligations

Investment securities with a carrying value of $ 2.40 billion and $ 2.32 billion at June 30, 2022 and December 31, 2021, respectively, were pledged to collateralize certain deposits and borrowings.

Investment securities with a carrying value of $ 2.41 billion and $ 2.32 billion at September 30, 2022 and December 31, 2021, respectively, were pledged to collateralize certain deposits and borrowings.

Securities pledged to collateralize certain deposits and borrowings included $ 427.2 million and $ 485.4 million of U.S.

Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at June 30, 2022 and December 31, 2021, respectively.

All securities sold under agreement to repurchase as of June 30, 2022 and December 31, 2021 have an overnight and continuous maturity.

Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at September 30, 2022 and December 31, 2021, respectively.

All securities sold under agreement to repurchase as of September 30, 2022 and December 31, 2021 have an overnight and continuous maturity.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

The segments of the Company’s loan portfolio are summarized as follows:

September 30,

(000’s omitted)

6 unchanged sentences

Loans, net of allowance for credit losses

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of June 30, 2022:

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of September 30, 2022:

90+ Days Past

13 unchanged sentences

Consumer direct

No interest income on nonaccrual loans was recognized during the three and six months ended June 30, 2022.

No interest income on nonaccrual loans was recognized during the three and nine months ended September 30, 2022.

An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income.

9 unchanged sentences

The condition of the borrower has deteriorated to the point that collection of the balance is improbable based on current facts and conditions and loss is likely.

The following tables show the amount of business lending loans by credit quality category at June 30, 2022 and December 31, 2021:

The following tables show the amount of business lending loans by credit quality category at September 30, 2022 and December 31, 2021:

Term Loans Amortized Cost Basis by Origination Year

(000’s omitted)

June 30, 2022

September 30, 2022

Business lending:

7 unchanged sentences

Total business lending

The business lending portfolio experienced an improvement in credit quality as a higher proportion of loans were classified as Pass at June 30, 2022 as compared to December 31, 2021.

The business lending portfolio experienced an improvement in credit quality as a higher proportion of loans were classified as Pass at September 30, 2022 as compared to December 31, 2021.

This change was the result of improvements in economic conditions, leading to improvements in the financial condition of the borrowers.

3 unchanged sentences

Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.

The following table details the balances in all other loan categories at June 30, 2022:

The following table details the balances in all other loan categories at September 30, 2022:

Term Loans Amortized Cost Basis by Origination Year

(000’s omitted)

June 30, 2022

September 30, 2022

Consumer mortgage:

35 unchanged sentences

Commercial loans greater than $ 0.5 million that are on nonaccrual are individually assessed, and if necessary, a specific allocation of the allowance for credit losses is provided.

A summary of individually assessed business loans as of June 30, 2022 and December 31, 2021 follows:

A summary of individually assessed business loans as of September 30, 2022 and December 31, 2021 follows:

September 30,

(000’s omitted)

4 unchanged sentences

Specifically allocated allowance

The average carrying balance of individually assessed loans was $ 8.7 million and $ 32.9 million for the three months ended June 30, 2022 and 2021, respectively.

The average carrying balance of individually assessed loans was $ 12.2 million and $ 34.6 million for the six months ended June 30, 2022 and 2021, respectively.

No interest income was recognized on individually assessed loans for the three or six months ended June 30, 2022 and 2021.

The average carrying balance of individually assessed loans was $ 3.2 million and $ 31.5 million for the three months ended September 30, 2022 and 2021, respectively.

The average carrying balance of individually assessed loans was $ 12.2 million and $ 34.1 million for the nine months ended September 30, 2022 and 2021, respectively.

No interest income was recognized on individually assessed loans for the three or nine months ended September 30, 2022 and 2021.

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans.

5 unchanged sentences

Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.

The amount of loss incurred in the three and six months ended June 30, 2022 and 2021 was immaterial.

Information regarding TDRs as of June 30, 2022 and December 31, 2021 is as follows:

June 30, 2022

The amount of loss incurred in the three and nine months ended September 30, 2022 and 2021 was immaterial.

Information regarding TDRs as of September 30, 2022 and December 31, 2021 is as follows:

September 30, 2022

December 31, 2021

4 unchanged sentences

Consumer direct

The following table presents information related to loans modified in a TDR during the three months and six months ended June 30, 2022 and 2021.

Of the loans noted in the table below, all consumer mortgage loans for the three months and six months ended June 30, 2022 and 2021 were modified due to a Chapter 7 bankruptcy as described previously.

The following table presents information related to loans modified in a TDR during the three months and nine months ended September 30, 2022 and 2021.

Of the loans noted in the table below, all consumer mortgage loans for the three months and nine months ended September 30, 2022 and 2021 were modified due to a Chapter 7 bankruptcy as described previously.

The financial effects of these restructurings were immaterial.

1 unchanged sentence

Three Months Ended

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

(000’s omitted)

5 unchanged sentences

Consumer direct

Six Months Ended

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

(000’s omitted)

6 unchanged sentences

Allowance for Credit Losses

The following presents by segment the activity in the allowance for credit losses during the three months and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, 2022

The following presents by segment the activity in the allowance for credit losses during the three months and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, 2022

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

The continued improvement in non-economic qualitative adjustments resulting from low levels of delinquencies, deferrals, and charge-offs, offset in part by a moderate deterioration in the economic forecast, have resulted in an allowance for credit losses to total loans ratio of 0.68 % at June 30, 2022, three basis points lower than the level at June 30, 2021 and consistent with the level at December 31, 2021.

Included in the provision for credit losses for the three and six months ended June 30, 2022 is $ 3.9 million of acquisition-related provision for credit losses recognized in connection with the Elmira acquisition.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 19.7 million at June 30, 2022 and is excluded from the estimate of credit losses and amortized cost basis of loans.

A weaker economic forecast, offset, in part, by the continued improvement in non-economic qualitative adjustments resulting from low levels of delinquencies and charge-offs as well as improved risk ratings have resulted in an allowance for credit losses to total loans ratio of 0.71 % at September 30, 2022, three basis points higher than the levels at both September 30, 2021 and December 31, 2021.

Included in the provision for credit losses for the three and nine months ended September 30, 2022 is $ 3.9 million of acquisition-related provision for credit losses recognized in connection with the Elmira acquisition.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 19.8 million at September 30, 2022 and is excluded from the estimate of credit losses and amortized cost basis of loans.

Under ASU No.

5 unchanged sentences

Management determined that these qualitative adjustments were needed to adjust historical information for expected losses and to reflect changes as a result of current conditions.

For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that were weighted, with forecasts available as of June 30, 2022.

For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that are weighted, with forecasts available as of September 30, 2022.

These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and include the continued influence of supply chain constraints and inflationary pressures as well as their commensurate impact on collateral values and economic growth.

The scenarios utilized forecast stable unemployment levels and continued historically elevated collateral values for housing and commercial real estate, offset by moderate deterioration in GDP growth, auto values, and median household income.

The scenarios utilized forecast stable unemployment levels, offset by deterioration in GDP growth, auto values, residential real estate, and median household income.

Management developed expected loss estimates considering factors for segments as outlined below:

14 unchanged sentences

In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered.

The following table presents the carrying amounts of loans purchased and sold during the six months ended June 30, 2022 by portfolio segment:

The following table presents the carrying amounts of loans purchased and sold during the nine months ended September 30, 2022 by portfolio segment:

(000’s omitted)

All purchases of loans were from the acquisition of Elmira.

All the sales of consumer mortgages during the six months ended June 30, 2022 were sales of secondary market eligible residential mortgage loans.

All the sales of consumer mortgages during the nine months ended September 30, 2022 were sales of secondary market eligible residential mortgage loans.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows:

June 30, 2022

September 30, 2022

December 31, 2021

6 unchanged sentences

(000’s omitted)

Jul - Dec 2022

Shown below are the components of the Company’s goodwill at December 31, 2021 and June 30, 2022:

Oct - Dec 2022

Shown below are the components of the Company’s goodwill at December 31, 2021 and September 30, 2022:

(000’s omitted)

December 31, 2021

June 30, 2022

September 30, 2022

MANDATORILY REDEEMABLE PREFERRED SECURITIES

As of June 30, 2022, the Company does not sponsor any business trusts.

As of September 30, 2022, the Company does not sponsor any business trusts.

The Company previously sponsored Community Capital Trust IV (“CCT IV”) until March 15, 2021 when the Company exercised its right to redeem all of the CCT IV debentures and associated preferred securities for a total of $ 77.3 million.

6 unchanged sentences

The Company made a $ 2.8 million contribution to its defined benefit pension plan and a $ 0.09 million contribution to the Steuben Trust Company Pension Plan in the first quarter of 2021.

The net periodic benefit cost for the three and six months ended June 30, 2022 and 2021 is as follows:

The net periodic benefit cost for the three and nine months ended September 30, 2022 and 2021 is as follows:

Pension Benefits

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(000’s omitted)

7 unchanged sentences

Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings.

The Company has determined that all of its outstanding non-vested stock awards are participating securities as of June 30, 2022.

The Company has determined that all of its outstanding non-vested stock awards are participating securities as of September 30, 2022.

Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period.

2 unchanged sentences

The treasury stock method determines the number of common shares that would be outstanding if all the dilutive options were exercised and the proceeds were used to repurchase common shares in the open market at the average market price for the applicable time period.

There were approximately 0.4 million and 0.3 million weighted-average anti-dilutive stock options outstanding for the three months and six months ended June 30, 2022, respectively, compared to approximately 0.2 million and 0.1 million weighted-average anti-dilutive stock options outstanding for the three months and six months ended June 30, 2021, respectively, that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three and six months ended June 30, 2022 and 2021:

There were approximately 0.4 million and 0.3 million weighted-average anti-dilutive stock options outstanding for the three months and nine months ended September 30, 2022, respectively, compared to approximately 0.2 million and 0.1 million weighted-average anti-dilutive stock options outstanding for the three months and nine months ended September 30, 2021, respectively, that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(000’s omitted, except per share data)

14 unchanged sentences

The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company’s discretion.

The Company repurchased 250,000 shares under the authorized plan during the first six months of 2022 and did not repurchase any shares under the authorized plan during the first six months of 2021.

The Company repurchased 250,000 shares under the authorized plan during the first nine months of 2022 and did no t repurchase any shares under the authorized plan during the first nine months of 2021.

Refer to Part II, Item 2:

10 unchanged sentences

The contract amounts of commitments and contingencies are as follows:

September 30,

(000’s omitted)

2 unchanged sentences

The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted.

As of June 30, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or its subsidiaries will be material to the Company’s consolidated financial position.

As of September 30, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or its subsidiaries will be material to the Company’s consolidated financial position.

On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such legal proceedings.

3 unchanged sentences

This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties.

The Company does not believe that the outcome of pending or threatened litigation will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

Although the Company does not believe that the outcome of pending or threatened litigation will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments.

1 unchanged sentence

Inputs used to measure fair value are classified into the following hierarchy:

● Level 1 - Quoted prices in active markets for identical assets or liabilities.

● Level 2 - Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

● Level 3 - Significant valuation assumptions not readily observable in a market.

Quoted prices in active markets for identical assets or liabilities.

Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Significant valuation assumptions not readily observable in a market.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

1 unchanged sentence

There were no transfers between any of the levels for the periods presented.

June 30, 2022

September 30, 2022

(000’s omitted)

51 unchanged sentences

The fair value information of assets and liabilities measured on a non-recurring basis presented below is not as of the period-end, but rather as of the date the fair value adjustment was recorded closest to the date presented.

June 30, 2022

September 30, 2022

December 31, 2021

14 unchanged sentences

The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the customer and customer’s business.

Such discounts are significant, ranging from 23.2 % to 87.8 % at June 30, 2022 and result in a Level 3 classification of the inputs for determining fair value.

Such discounts are significant, ranging from 23.2 % to 73.5 % at September 30, 2022 and result in a Level 3 classification of the inputs for determining fair value.

OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

6 unchanged sentences

Impairment is recognized through a valuation allowance.

There was no valuation allowance at June 30, 2022 and December 31, 2021.

There is a valuation allowance of approximately $ 0.1 million at September 30, 2022 and there was no valuation allowance at December 31, 2021.

The Company has recorded contingent consideration liabilities that arise from acquisition activity.

8 unchanged sentences

Fair Value at

(000's omitted)

June 30, 2022

(000’s omitted, except per loan data)

September 30, 2022

Valuation Technique

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Embedded servicing value

Mortgage servicing rights

Discounted cash flow

Weighted average constant prepayment rate

3.5 % - 4.1 % ( 3.6 %)

Weighted average discount rate

4.6 % - 4.8 % ( 4.8 %)

Adequate compensation

Contingent consideration

43 unchanged sentences

Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at June 30, 2022 and December 31, 2021 are as follows:

June 30, 2022

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022

December 31, 2021

2 unchanged sentences

Financial liabilities:

Overnight Federal Reserve Bank borrowings

Overnight borrowings

Securities sold under agreement to repurchase, short-term

14 unchanged sentences

The fair values of each approximate the respective carrying values because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

DERIVATIVE INSTRUMENTS

The Company is party to derivative financial instruments in the normal course of its business to meet the financing needs of its customers and to manage its own exposure to fluctuations in interest rates.

These financial instruments have been limited to interest rate swap agreements, commitments to originate real estate loans held for sale and forward sales commitments.

The Company does not hold or issue derivative financial instruments for trading or other speculative purposes.

The Company enters into forward sales commitments for the future delivery of residential mortgage loans, and interest rate lock commitments to fund loans at a specified interest rate.

The forward sales commitments are utilized to reduce interest rate risk associated with interest rate lock commitments and loans held for sale.

Changes in the estimated fair value of the forward sales commitments and interest rate lock commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

At inception and during the life of the interest rate lock commitment, the Company includes the expected net future cash flows related to the associated servicing of the loan as part of the fair value measurement of the interest rate lock commitments.

These derivatives are recorded at fair value, which were immaterial at June 30, 2022 and December 31, 2021.

The effect of the changes to these derivatives for the three and six months then ended was also immaterial.

The Company acquired interest rate swaps in 2017 with notional amounts with certain commercial customers which totaled $ 0.3 million at June 30, 2022 and $ 0.5 million at December 31, 2021.

In order to minimize the Company’s risk, these customer derivatives (pay floating/receive fixed swaps) have been offset with essentially matching interest rate swaps (pay fixed/receive floating swaps) with the Company’s counterparty totaling $ 0.3 million at June 30, 2022 and $ 0.5 million at December 31, 2021.

At June 30, 2022, the weighted average receive rate of these interest rate swaps was 3.70 %, the weighted average pay rate was 3.54 % and the weighted average maturity was 0.8 years.

At December 31, 2021, the weighted average receive rate of these interest rate swaps was 2.35 %, the weighted average pay rate was 3.54 % and the weighted average maturity was 1.3 years.

Hedge accounting has not been applied for these derivatives.

Since the terms of the swaps with the Company’s customer and the other financial institution offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s results of operations.

The Company also acquired interest rate swaps in 2017 with notional amounts totaling $ 4.9 million at June 30, 2022, and $ 5.3 million at December 31, 2021, that were designated as fair value hedges of certain fixed rate loans with municipalities which are recorded in loans in the consolidated statements of condition.

At June 30, 2022, the weighted average receive rate of these interest rate swaps was 2.27 %, the weighted average pay rate was 3.11 % and the weighted average maturity was 11.0 years.

At December 31, 2021, the weighted average receive rate of these interest rate swaps was 1.39 %, the weighted average pay rate was 3.11 % and the weighted average maturity was 11.5 years.

The Company includes the gain or loss on the hedged items in interest and fees on loans, the same line item as the offsetting gain or loss on the related interest rate swaps.

The effects of fair value accounting in the consolidated statements of income for the three and six months ended June 30, 2022 are immaterial.

As of June 30, 2022 and December 31, 2021, the following amounts were recorded in the consolidated statements of condition related to cumulative basis adjustments for fair value hedges:

(000’s omitted)

Cumulative Amount of Fair Value

Carrying Amount of the Hedged

Hedging Adjustment Included in the

Line Item in the Consolidated

Carrying Amount of the Hedged Assets

Statement of Condition in Which

the Hedged Item Is Included

Fair values of derivative instruments as of June 30, 2022 and December 31, 2021 are as follows:

(000’s omitted)

June 30, 2022

Derivative Assets

Derivative Liabilities

Consolidated Statement of

Condition Location

Derivatives designated as hedging instruments under Subtopic 815-20

Interest rate swaps

Derivatives not designated as hedging instruments under Subtopic 815-20

Interest rate swaps

Accrued interest and other liabilities

Commitments to originate real estate loans for sale

Forward sales commitments

Total derivatives

(000’s omitted)

December 31, 2021

Derivative Assets

Derivative Liabilities

Consolidated Statement

Consolidated Statement of

of Condition Location

Condition Location

Derivatives designated as hedging instruments under Subtopic 815-20

Interest rate swaps

Derivatives not designated as hedging instruments under Subtopic 815-20

Interest rate swaps

Accrued interest and other liabilities

Commitments to originate real estate loans for sale

Forward sales commitments

Total derivatives

The Company assessed its counterparty risk at June 30, 2022 and December 31, 2021 and determined any credit risk inherent in our derivative contracts was not material.

Further information about the fair value of derivative financial instruments can be found in Note K to these consolidated financial statements.

SEGMENT INFORMATION

15 unchanged sentences

Benefit Services

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Net interest income

3 unchanged sentences

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

1 unchanged sentence

Core deposit intangibles & Other intangibles

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Net interest income

8 unchanged sentences

Benefit Services

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Net interest income

6 unchanged sentences

Income before income taxes

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Net interest income

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements