COMMUNITY FINANCIAL SYSTEM, INC. 10-Q

Item 1. Financial Statements COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2022 2021 Assets: ​ ​ ​ Cash and cash equivalents ​ $ 247,391 ​ $ 1,875,064 Available-for-sale investment securities includes pledged securities that can be sold or repledged of $ 427,164 and $ 485,414 , respectively (cost of $ 6,136,544 and $ 4,980,102 , respectively) ​ 5,170,689 ​ 4,934,210 Equity and other securities (cost of $ 55,665 and $ 43,917 , respectively) ​ 56,603 ​ 44,879 ​ ​ ​ ​ ​ ​ ​ Loans, net ​ 8,543,607 ​ 7,373,639 Allowance for credit losses ​ ( 60,363 ) ​ ( 49,869 ) Net loans ​ 8,483,244 ​ 7,323,770 ​ ​ ​ ​ ​ ​ Goodwill ​ 844,984 ​ 799,109 Core deposit intangibles, net ​ 13,550 ​ 9,087 Other intangibles, net ​ 50,690 ​ 56,139 Goodwill and intangible assets, net ​ 909,224 ​ 864,335 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ ​ 161,966 ​ ​ 160,651 Accrued interest and fees receivable ​ 41,627 ​ 35,894 Other assets ​ 523,803 ​ 313,854 ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 15,594,547 ​ $ 15,552,657 ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ $ 4,281,859 ​ $ 3,921,663 Interest-bearing deposits ​ 9,204,462 ​ 8,989,505 Total deposits ​ 13,486,321 ​ 12,911,168 ​ ​ ​ ​ ​ ​ ​ Overnight borrowings ​ 119,800 ​ 0 Securities sold under agreement to repurchase, short-term ​ 352,772 ​ 324,720 Other Federal Home Loan Bank borrowings ​ 19,472 ​ 1,888 Subordinated notes payable ​ 3,256 ​ 3,277 Accrued interest and other liabilities ​ 151,763 ​ 210,797 Total liabilities ​ 14,133,384 ​ 13,451,850 ​ ​ ​ ​ ​ Commitments and contingencies (See Note J) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 1.00 par value, 500,000 shares authorized, 0 shares issued ​ 0 ​ 0 Common stock, $ 1.00 par value, 75,000,000 shares authorized; 54,188,008 and 54,092,421 shares issued, respectively ​ 54,188 ​ 54,092 Additional paid-in capital ​ 1,048,444 ​ 1,041,304 Retained earnings ​ 1,123,641 ​ 1,058,286 Accumulated other comprehensive loss ​ ( 746,381 ) ​ ( 50,627 ) 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) ​ ( 26,426 ) ​ ( 10,610 ) Deferred compensation arrangements ( 134,477 and 146,860 shares, respectively) ​ 7,697 ​ 8,362 Total shareholders’ equity ​ 1,461,163 ​ 2,100,807 ​ ​ ​ ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,594,547 ​ $ 15,552,657 ​ See accompanying notes to consolidated financial statements (unaudited). ​ 3 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per-Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2022 2021 2022 2021 Interest income: ​ ​ ​ ​ Interest and fees on loans ​ $ 88,434 ​ $ 75,825 ​ $ 238,907 ​ $ 231,446 Interest and dividends on taxable investments ​ 23,737 ​ 17,361 ​ 71,228 ​ 49,325 Interest and dividends on nontaxable investments ​ 3,704 ​ 2,480 ​ 9,611 ​ 7,920 Total interest income ​ 115,875 ​ 95,666 ​ 319,746 ​ 288,691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense: ​ ​ ​ ​ ​ ​ ​ ​ Interest on deposits ​ 3,855 ​ 2,822 ​ 9,111 ​ 8,897 Interest on borrowings ​ 1,588 ​ 195 ​ 2,113 ​ 716 Interest on subordinated notes payable ​ 38 ​ 38 ​ 115 ​ 115 Interest on subordinated debt held by unconsolidated subsidiary trusts ​ 0 ​ 0 ​ 0 ​ 293 Total interest expense ​ 5,481 ​ 3,055 ​ 11,339 ​ 10,021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ 110,394 ​ 92,611 ​ 308,407 ​ 278,670 Provision for credit losses ​ 5,061 ​ ( 944 ) ​ 12,005 ​ ( 11,001 ) Net interest income after provision for credit losses ​ 105,333 ​ 93,555 ​ 296,402 ​ 289,671 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues: ​ ​ ​ ​ ​ ​ ​ ​ Deposit service fees ​ 17,452 ​ 15,442 ​ 49,745 ​ 43,758 Mortgage banking ​ ​ 171 ​ 460 ​ 595 ​ 1,479 Other banking services ​ 912 ​ 996 ​ 2,521 ​ 2,830 Employee benefit services ​ 27,884 ​ 29,923 ​ 86,385 ​ 83,933 Insurance services ​ 11,332 ​ 9,176 ​ 31,521 ​ 25,538 Wealth management services ​ 7,502 ​ ​ 8,322 ​ ​ 24,276 ​ ​ 24,748 Unrealized (loss) gain on equity securities ​ ( 4 ) ​ ( 10 ) ​ ( 24 ) ​ 14 Total noninterest revenues ​ 65,249 ​ 64,309 ​ 195,019 ​ 182,300 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses: ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ 66,190 ​ 62,883 ​ 193,236 ​ 178,407 Occupancy and equipment ​ 10,364 ​ 9,867 ​ 31,740 ​ 31,437 Data processing and communications ​ 14,184 ​ 12,966 ​ 40,454 ​ 38,123 Amortization of intangible assets ​ 3,837 ​ 3,703 ​ 11,420 ​ 10,300 Legal and professional fees ​ 3,194 ​ 3,352 ​ 10,196 ​ 8,885 Business development and marketing ​ 3,616 ​ 2,383 ​ 9,975 ​ 7,071 Litigation accrual ​ ​ 0 ​ ​ ( 100 ) ​ ​ 0 ​ ​ ( 100 ) Acquisition expenses ​ ​ 409 ​ ​ 102 ​ ​ 4,668 ​ ​ 133 Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 0 ​ ​ 400 ​ ​ 0 Other expenses ​ 6,391 ​ 5,280 ​ ​ 16,327 ​ 12,969 Total noninterest expenses ​ 108,185 ​ 100,436 ​ ​ 318,416 ​ 287,225 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 62,397 ​ 57,428 ​ ​ 173,005 ​ 184,746 Income taxes ​ 13,706 ​ 12,092 ​ ​ 37,454 ​ 38,616 Net income ​ $ 48,691 ​ $ 45,336 ​ $ 135,551 ​ $ 146,130 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 0.90 ​ $ 0.84 ​ $ 2.51 ​ $ 2.70 Diluted earnings per share ​ $ 0.90 ​ $ 0.83 ​ $ 2.49 ​ $ 2.68 ​ See accompanying notes to consolidated financial statements (unaudited). ​ 4 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2022 2021 2022 2021 Pension and other post retirement obligations: ​ ​ ​ ​ ​ Amortization of actuarial losses included in net periodic pension cost, gross ​ $ 220 ​ $ 911 ​ $ 660 ​ $ 2,733 Tax effect ​ ( 53 ) ​ ( 219 ) ​ ( 160 ) ​ ( 657 ) Amortization of actuarial losses included in net periodic pension cost, net ​ 167 ​ 692 ​ 500 ​ ​ 2,076 Amortization of prior service cost included in net periodic pension cost, gross ​ 109 ​ 50 ​ 327 ​ 150 Tax effect ​ ( 26 ) ​ ( 12 ) ​ ( 79 ) ​ ( 36 ) Amortization of prior service cost included in net periodic pension cost, net ​ 83 ​ 38 ​ 248 ​ 114 Other comprehensive income related to pension and other post-retirement obligations, net of taxes ​ 250 ​ 730 ​ 748 ​ 2,190 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized losses on available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized losses arising during period, gross ​ ( 301,023 ) ​ ( 21,268 ) ​ ( 919,962 ) ​ ( 168,621 ) Tax effect ​ 73,119 ​ 5,112 ​ 223,460 ​ 40,528 Other comprehensive loss related to unrealized losses on available-for-sale securities, net of taxes ​ ( 227,904 ) ​ ( 16,156 ) ​ ( 696,502 ) ​ ( 128,093 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ( 227,654 ) ​ ( 15,426 ) ​ ( 695,754 ) ​ ( 125,903 ) Net income ​ 48,691 ​ 45,336 ​ 135,551 ​ 146,130 Comprehensive (loss) income ​ $ ( 178,963 ) ​ $ 29,910 ​ $ ( 560,203 ) ​ $ 20,227 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ September 30, ​ December 31, ​ 2022 2021 Accumulated Other Comprehensive Loss By Component: ​ ​ ​ ​ ​ Unrealized loss for pension and other post-retirement obligations $ ( 19,637 ) ​ $ ( 20,624 ) Tax effect 4,915 ​ 5,154 Net unrealized loss for pension and other post-retirement obligations ( 14,722 ) ​ ( 15,470 ) ​ ​ ​ ​ ​ ​ ​ Unrealized loss on available-for-sale securities ( 965,855 ) ​ ( 45,893 ) Tax effect 234,196 ​ 10,736 Net unrealized loss on available-for-sale securities ( 731,659 ) ​ ( 35,157 ) ​ ​ ​ ​ ​ ​ ​ Accumulated other comprehensive loss $ ( 746,381 ) ​ $ ( 50,627 ) ​ See accompanying notes to consolidated financial statements (unaudited). ​ ​ 5 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Three months ended September 30, 2022 and 2021 (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ Shares ​ Amount ​ Paid-In ​ Retained ​ Comprehensive ​ Treasury ​ Compensation ​ ​ ​ ​ Outstanding Issued Capital Earnings Loss Stock Arrangements Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at June 30, 2022 53,734,027 ​ $ 54,185 ​ $ 1,046,303 ​ $ 1,098,664 ​ $ ( 518,727 ) ​ $ ( 26,369 ) ​ $ 7,640 ​ $ 1,661,696 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 48,691 ​ ​ ​ ​ ​ ​ ​ 48,691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 227,654 ) ​ ​ ​ ​ ​ ( 227,654 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 0.44 per share ​ ​ ​ ​ ​ ​ ( 23,714 ) ​ ​ ​ ​ ​ ​ ( 23,714 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 2,892 ​ 3 ​ 284 ​ ​ ​ ​ ​ ​ ​ ​ 287 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 1,857 ​ ​ ​ ​ ​ ​ ​ 1,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased for benefit plans, net ( 903 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 57 ) ​ 57 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2022 53,736,016 ​ $ 54,188 ​ $ 1,048,444 ​ $ 1,123,641 ​ $ ( 746,381 ) ​ $ ( 26,426 ) ​ $ 7,697 ​ $ 1,461,163 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at June 30, 2021 53,918,695 ​ $ 54,064 ​ $ 1,037,088 ​ $ 1,015,742 ​ $ ( 48,400 ) ​ $ ( 5,632 ) ​ $ 8,238 ​ $ 2,061,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 45,336 ​ ​ ​ ​ ​ ​ ​ 45,336 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 15,426 ) ​ ​ ​ ​ ​ ( 15,426 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 0.43 per share ​ ​ ​ ​ ​ ​ ( 23,142 ) ​ ​ ​ ​ ​ ​ ​ ( 23,142 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 8,122 ​ 8 ​ 464 ​ ​ ​ ​ ​ ​ ​ ​ ​ 472 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 1,594 ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,594 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased for benefit plans, net ( 830 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 61 ) ​ 61 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2021 53,925,987 ​ $ 54,072 ​ $ 1,039,146 ​ $ 1,037,936 ​ $ ( 63,826 ) ​ $ ( 5,693 ) ​ $ 8,299 ​ $ 2,069,934 ​ See accompanying notes to consolidated financial statements (unaudited). ​ 6 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Nine months ended September 30, 2022 and 2021 (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ Shares ​ Amount ​ Paid-In ​ Retained ​ Comprehensive ​ Treasury ​ Compensation ​ ​ ​ ​ Outstanding Issued Capital Earnings (Loss) Income Stock Arrangements Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2021 53,878,047 ​ $ 54,092 ​ $ 1,041,304 ​ $ 1,058,286 ​ $ ( 50,627 ) ​ $ ( 10,610 ) ​ $ 8,362 ​ $ 2,100,807 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 135,551 ​ ​ ​ ​ ​ ​ ​ 135,551 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 695,754 ) ​ ​ ​ ​ ​ ( 695,754 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 1.30 per share ​ ​ ​ ​ ​ ​ ( 70,196 ) ​ ​ ​ ​ ​ ​ ( 70,196 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 95,586 ​ 96 ​ 990 ​ ​ ​ ​ ​ ​ ​ ​ 1,086 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 6,047 ​ ​ ​ ​ ​ ​ ​ 6,047 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Distribution of stock under deferred compensation arrangements 14,934 ​ ​ ​ 103 ​ ​ ​ ​ 739 ​ ( 842 ) ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased ​ ( 250,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 16,378 ) ​ ​ ​ ​ ​ ( 16,378 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased for benefit plans, net ( 2,551 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 177 ) ​ 177 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2022 53,736,016 ​ $ 54,188 ​ $ 1,048,444 ​ $ 1,123,641 ​ $ ( 746,381 ) ​ $ ( 26,426 ) ​ $ 7,697 ​ $ 1,461,163 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2020 53,593,127 ​ $ 53,755 ​ $ 1,025,163 ​ $ 960,183 ​ $ 62,077 ​ $ ( 6,198 ) ​ $ 9,127 ​ $ 2,104,107 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 146,130 ​ ​ ​ ​ ​ ​ ​ 146,130 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 125,903 ) ​ ​ ​ ​ ​ ( 125,903 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 1.27 per share ​ ​ ​ ​ ​ ​ ( 68,377 ) ​ ​ ​ ​ ​ ​ ​ ( 68,377 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 317,390 ​ 317 ​ 8,824 ​ ​ ​ ​ ​ ​ ​ ​ ​ 9,141 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 4,836 ​ ​ ​ ​ ​ ​ ​ ​ ​ 4,836 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Distribution of stock under deferred compensation arrangements ​ 18,089 ​ ​ ​ ​ ​ 323 ​ ​ ​ ​ ​ ​ ​ ​ 694 ​ ​ ( 1,017 ) ​ ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased for benefit plans, net ( 2,619 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 189 ) ​ 189 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2021 53,925,987 ​ $ 54,072 ​ $ 1,039,146 ​ $ 1,037,936 ​ $ ( 63,826 ) ​ $ ( 5,693 ) ​ $ 8,299 ​ $ 2,069,934 ​ See accompanying notes to consolidated financial statements (unaudited). ​ ​ ​ ​ ​ 7 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2022 2021 Operating activities: ​ ​ Net income ​ $ 135,551 ​ $ 146,130 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation ​ 10,956 ​ 11,898 Amortization of intangible assets ​ 11,420 ​ 10,300 Net accretion on securities, loans and borrowings ​ ( 14,519 ) ​ ( 17,260 ) Stock-based compensation ​ 6,047 ​ 4,836 Provision for credit losses ​ 12,005 ​ ( 11,001 ) Amortization of mortgage servicing rights ​ 554 ​ 397 Unrealized loss (gain) on equity securities ​ ​ 24 ​ ​ ( 14 ) Income from bank-owned life insurance policies ​ ( 1,543 ) ​ ( 1,500 ) Net gain on sale of assets ​ ( 570 ) ​ ( 408 ) Change in other assets and other liabilities ​ ( 16,889 ) ​ 9,646 Net cash provided by operating activities ​ 143,036 ​ 153,024 Investing activities: ​ ​ Proceeds from maturities, calls, and paydowns of available-for-sale investment securities ​ 210,152 ​ 313,913 Proceeds from maturities and redemptions of equity and other securities ​ 2,247 ​ 2,652 Purchases of available-for-sale investment securities ​ ( 1,348,400 ) ​ ( 1,284,544 ) Purchases of equity and other securities ​ ( 6,108 ) ​ ( 210 ) Net (increase) decrease in loans ​ ( 735,072 ) ​ 141,491 Cash received (paid) for acquisitions, net of cash acquired of $ 84,988 and $ 541 , respectively ​ 345 ​ ( 29,329 ) Proceeds from sales of premises and equipment, net ​ ​ 1,928 ​ ​ 103 Purchases of premises and equipment, net ​ ( 10,014 ) ​ ( 10,299 ) Real estate tax credit investments ​ ​ ( 247 ) ​ ​ ( 586 ) Net cash used in investing activities ​ ( 1,885,169 ) ​ ( 866,809 ) Financing activities: ​ ​ Net increase in deposits ​ 52,858 ​ 1,498,847 Net increase in overnight borrowings ​ 119,800 ​ 0 Net increase in securities sold under agreement to repurchase, short-term ​ ​ 28,052 ​ ​ 32,755 Payments on other Federal Home Loan Bank borrowings ​ ​ ( 71 ) ​ ​ ( 3,746 ) Payments on subordinated debt held by unconsolidated subsidiary trusts ​ ​ 0 ​ ​ ( 77,320 ) Proceeds from the issuance of common stock ​ 1,086 ​ 9,141 Purchases of treasury stock ​ ( 16,555 ) ​ ( 189 ) Increase in deferred compensation arrangements ​ 177 ​ 189 Cash dividends paid ​ ( 69,681 ) ​ ( 67,823 ) Withholding taxes paid on share-based compensation ​ ( 1,206 ) ​ ( 1,213 ) Net cash provided by financing activities ​ 114,460 ​ 1,390,641 Change in cash and cash equivalents ​ ( 1,627,673 ) ​ 676,856 Cash and cash equivalents at beginning of period ​ 1,875,064 ​ 1,645,805 Cash and cash equivalents at end of period ​ $ 247,391 ​ $ 2,322,661 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 11,793 ​ $ 10,722 Cash paid for income taxes ​ 41,061 ​ 34,067 Supplemental disclosures of noncash financing and investing activities: ​ ​ ​ ​ ​ ​ Dividends declared and unpaid ​ 23,750 ​ 23,249 Transfers from loans to other real estate ​ 303 ​ 281 Transfers from premises and equipment, net to other assets ​ ​ 5,113 ​ ​ 0 ​ ​ ​ ​ ​ ​ ​ Acquisitions: ​ ​ ​ ​ ​ ​ Fair value of assets acquired, excluding acquired cash and intangibles ​ 486,077 ​ 1,339 Fair value of liabilities assumed ​ 542,668 ​ 1,164 ​ See accompanying notes to consolidated financial statements (unaudited). ​ ​ 8 Table of Contents COMMUNITY BANK SYSTEM, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 2022 NOTE A: BASIS OF PRESENTATION 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. (the “Company”), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results for the interim periods in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and Article 10 of Regulation S-X. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. The Company’s unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022. ​ NOTE B: ACQUISITIONS Current and Prior Period Acquisitions On May 13, 2022, the Company completed the acquisition of Elmira Savings Bank (“Elmira”), a New York State chartered savings bank headquartered in Elmira, New York, for $ 82.2 million in cash. The acquisition enhances the Company’s presence in five counties in New York’s Southern Tier and Finger Lakes regions. In connection with the acquisition, the Company acquired approximately $ 579.0 million of identifiable assets, including $ 437.0 million of loans, $ 11.3 million of investment securities, and $ 8.0 million of core deposit intangibles, as well as $ 522.3 million of deposits. Preliminary goodwill of $ 45.8 million was recognized as a result of the merger. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. The Company also recognized a $ 3.9 million acquisition-related provision for credit losses for loans acquired in the transaction. 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. (“OneGroup”), completed acquisitions of certain assets of three insurance agencies for an aggregate amount of $ 2.5 million in cash. The Company recorded a $ 2.5 million customer list intangible asset in conjunction with the acquisitions. The effects of the acquired assets have been included in the consolidated financial statements since that date. 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. (“TGA”), a specialty-lines insurance broker based in the Boston, Massachusetts area, for $ 11.6 million in cash plus contingent consideration with a fair value at acquisition date of $ 1.5 million. The Company recorded a $ 10.9 million customer list intangible asset and $ 2.2 million of goodwill in conjunction with the acquisition. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. 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. Amounts are payable in two payments, the first of which is two years after the acquisition date, and the second is three years after the acquisition date. The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $ 3.4 million. The fair value of the contingent consideration recognized on the acquisition date of $ 1.5 million was estimated by applying the income approach, a measure that is based on significant Level 3 inputs not readily observable in the market. Key assumptions at the date of acquisition include (1) a discount rate range of 0.82 % to 1.09 % applied to present value the payments, and (2) probability adjusted level of retained revenue between $ 2.3 million and $ 3.8 million. 9 Table of Contents The contingent consideration related to the TGA acquisition was revalued at June 30, 2022. The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $ 3.4 million. Key assumptions include (1) a discount rate range of 4.44 % to 4.55 % applied to present value the payments, and (2) probability adjusted level of retained revenue between $ 3.3 million and $ 3.7 million. 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. (“BPA”), completed its acquisition of Fringe Benefits Design of Minnesota, Inc. (“FBD”) for $ 15.4 million in cash plus contingent consideration with a fair value at acquisition date of $ 1.4 million. The Company recorded a $ 14.0 million customer list intangible asset and $ 2.1 million of goodwill in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since that date. Revenues of approximately $ 0.8 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. Amounts are payable three years after the acquisition date. The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $ 2.7 million. The fair value of the contingent consideration recognized on the acquisition date of $ 1.4 million was estimated by applying the income approach; a measure that is based on significant Level 3 inputs not readily observable in the market. Key assumptions at the date of acquisition include (1) a discount rate of 1.05 % applied to present value the payment, and (2) probability adjusted level of retained revenue between $ 5.6 million and $ 5.8 million. The contingent consideration related to the FBD acquisition was revalued at June 30, 2022. The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $ 2.7 million. Key assumptions include (1) a discount rate of 4.51 % applied to present value the payment, and (2) probability adjusted level of retained revenue between $ 5.2 million and $ 5.4 million. 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. (“NuVantage”), an insurance agency headquartered in Melbourne, Florida. The Company paid $ 2.9 million in cash and recorded a $ 1.4 million customer list intangible asset and $ 1.4 million of goodwill in conjunction with the acquisition. 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 $ 0.9 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 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. 10 Table of Contents The following table summarizes the estimated fair value of the assets acquired and liabilities assumed: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 (000s omitted) Elmira ​ Other (1) ​ Total TGA FBD NuVantage Total Consideration: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 82,179 ​ $ 2,464 ​ $ 84,643 ​ $ 11,620 ​ $ 15,350 ​ $ 2,900 ​ $ 29,870 Contingent consideration ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 1,500 ​ ​ 1,400 ​ ​ 0 ​ ​ 2,900 Total net consideration ​ ​ 82,179 ​ ​ 2,464 ​ ​ 84,643 ​ ​ 13,120 ​ 16,750 ​ 2,900 ​ 32,770 Recognized amounts of identifiable assets acquired and liabilities assumed: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ 84,988 ​ ​ 0 ​ ​ 84,988 ​ ​ 0 ​ 541 ​ 0 ​ 541 Investment securities ​ ​ 11,305 ​ ​ 0 ​ ​ 11,305 ​ ​ 0 ​ 0 ​ 0 ​ 0 Loans, net of allowance for credit losses on PCD loans ​ ​ 436,948 ​ ​ 0 ​ ​ 436,948 ​ ​ 0 ​ 0 ​ 0 ​ 0 Premises and equipment, net ​ ​ 11,303 ​ ​ 0 ​ ​ 11,303 ​ ​ 279 ​ 282 ​ 199 ​ 760 Accrued interest and fees receivable ​ ​ 884 ​ ​ 0 ​ ​ 884 ​ ​ 0 ​ 0 ​ 0 ​ 0 Other assets ​ ​ 25,637 ​ ​ 0 ​ ​ 25,637 ​ ​ 0 ​ 579 ​ 0 ​ 579 Core deposit intangibles ​ ​ 7,970 ​ ​ 0 ​ ​ 7,970 ​ ​ 0 ​ 0 ​ 0 ​ 0 Other intangibles ​ ​ 0 ​ ​ 2,464 ​ ​ 2,464 ​ ​ 10,900 ​ 14,000 ​ 1,437 ​ 26,337 Deposits ​ ​ ( 522,295 ) ​ ​ 0 ​ ​ ( 522,295 ) ​ ​ 0 ​ 0 ​ 0 ​ 0 Other liabilities ​ ​ ( 2,757 ) ​ ​ 0 ​ ​ ( 2,757 ) ​ ​ ( 229 ) ​ ( 761 ) ​ ( 174 ) ​ ( 1,164 ) Other Federal Home Loan Bank borrowings ​ ​ ( 17,616 ) ​ ​ 0 ​ ​ ( 17,616 ) ​ ​ 0 ​ 0 ​ 0 ​ 0 Total identifiable assets, net ​ ​ 36,367 ​ ​ 2,464 ​ ​ 38,831 ​ ​ 10,950 ​ 14,641 ​ 1,462 ​ 27,053 Goodwill ​ $ 45,812 ​ $ 0 ​ $ 45,812 ​ $ 2,170 ​ $ 2,109 ​ $ 1,438 ​ $ 5,717 (1) Includes amounts for all OneGroup acquisitions completed in 2022. The Company has acquired loans from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination (purchased credit deteriorated (“PCD”) loans). There were no investment securities acquired from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination. The carrying amount of those loans is as follows at the date of acquisition: ​ ​ ​ ​ ​ (000s omitted) PCD Loans Par value of PCD loans at acquisition ​ $ 2,184 Allowance for credit losses at acquisition ​ ( 71 ) Non-credit discount at acquisition ​ ( 81 ) Fair value of PCD loans at acquisition ​ $ 2,032 ​ The fair value of checking, savings and money market deposit accounts acquired were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates. Borrowings assumed with the Elmira acquisition included Federal Home Loan Bank of New York (“FHLB”) borrowings with a fair value of $ 17.6 million, with maturity dates ranging from January 2023 through March 2027 and a weighted average interest rate of 2.48 %. The core deposit intangibles related to the Elmira acquisition are being amortized using an accelerated method over an estimated useful life of eight years . The other intangibles related to the NuVantage acquisition and the OneGroup asset acquisitions completed in 2022 are being amortized using an accelerated method over their estimated useful of life of eight years for NuVantage and two of the 2022 OneGroup asset acquisitions, and ten years for the third 2022 OneGroup asset acquisition. The other intangibles related to the TGA and FBD acquisitions are being amortized using an accelerated method over their estimated useful life of 13 years and 15 years , respectively. Goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira acquisition, the All Other segment for the NuVantage and TGA acquisitions, and the Employee Benefit Services segment for the FBD acquisition. Goodwill arising from the Elmira and FBD acquisitions is not deductible for tax purposes. Goodwill arising from the NuVantage and TGA acquisitions is deductible for tax purposes. Direct costs related to the acquisitions were expensed as incurred. 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. 11 Table of Contents Supplemental Pro Forma Financial Information The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the three and nine months ended September 30, 2022 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. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of the acquisition. The pro forma information set forth below reflects the historical results of Elmira combined with the Company’s consolidated statements of income with adjustments related to (a) certain purchase accounting fair value adjustments and (b) amortization of core deposit intangibles. Acquisition-related expenses totaling $ 0.4 million and $ 4.7 million for the three and nine months ended September 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pro Forma (Unaudited) Pro Forma (Unaudited) ​ ​ Three Months Ended ​ Nine Months Ended (000’s omitted) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Total revenue, net of interest expense ​ $ 175,595 ​ $ 163,627 ​ $ 512,687 ​ $ 480,668 Net income ​ 49,016 ​ 46,838 ​ 141,138 ​ 146,529 ​ ​ NOTE C: ACCOUNTING POLICIES The accounting policies of the Company, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as presented on pages 76 through 88 of the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022 except as noted below. Contract Balances A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of 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. 12 Table of Contents Recently Adopted Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848) . The updated guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this guidance apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This new guidance is effective as of March 12, 2020 through December 31, 2022. Adoption is permitted in any interim periods for which financial statements have not been issued. The Company has established a working group that includes multiple functions to guide the transition from LIBOR to alternative reference rates. The Company has identified all known LIBOR exposures, created a preliminary plan to address the exposures, and new originations either do not utilize LIBOR, or replacement rate language, provisions, and conventions have been specified. The Company continues to evaluate its exposure to LIBOR and communicate with all stakeholders in order to facilitate the transition. The Company adopted this guidance on January 1, 2022 and determined that this guidance does not have a material impact on the Company’s consolidated financial statements as the Company’s exposure to LIBOR-based loans and financial instruments is insignificant. In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205) , Financial Services-Depository and Lending (Topic 942) , and Financial Services-Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786 , Amendments to Financial Disclosures about Acquired and Disposed Businesses , and No. 33-10835 , Update of Statistical Disclosures for Bank and Savings and Loan Registrants . This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses , and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants . The amendments in this update are effective upon addition to the FASB Codification and the Company determined that this guidance does not have a material impact on the Company’s consolidated financial statements. Accounting Pronouncements Not Yet Adopted In March 2022, the FASB issued ASU 2022-02 , Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross charge-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. Early adoption, however, is permitted if an entity has adopted the CECL accounting standard. While the guidance will result in expanded disclosures, the Company does not expect the adoption of this standard will have a material impact on the Company’s consolidated financial statements. ​ 13 Table of Contents NOTE D: INVESTMENT SECURITIES 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 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (000’s omitted) Cost Gains Losses Value Cost Gains Losses Value Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 5,103,053 ​ $ 0 ​ $ 827,613 ​ $ 4,275,440 ​ $ 4,064,624 ​ $ 39,997 ​ $ 106,057 ​ $ 3,998,564 Obligations of state and political subdivisions ​ 561,464 ​ 496 ​ 72,050 ​ 489,910 ​ 413,019 ​ 17,326 ​ 56 ​ 430,289 Government agency mortgage-backed securities ​ 449,808 ​ 57 ​ 64,974 ​ 384,891 ​ 474,506 ​ 7,615 ​ 5,065 ​ 477,056 Corporate debt securities ​ 8,000 ​ 0 ​ 967 ​ 7,033 ​ 8,000 ​ 39 ​ 77 ​ 7,962 Government agency collateralized mortgage obligations ​ 14,219 ​ 1 ​ 805 ​ 13,415 ​ 19,953 ​ 410 ​ 24 ​ 20,339 Total available-for-sale investment portfolio ​ $ 6,136,544 ​ $ 554 ​ $ 966,409 ​ $ 5,170,689 ​ $ 4,980,102 ​ $ 65,387 ​ $ 111,279 ​ $ 4,934,210 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity and other Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value ​ $ 251 ​ $ 198 ​ $ 10 ​ $ 439 ​ $ 251 ​ $ 212 ​ $ 0 ​ $ 463 Federal Home Loan Bank common stock ​ 18,438 ​ 0 ​ 0 ​ 18,438 ​ 7,188 ​ 0 ​ 0 ​ 7,188 Federal Reserve Bank common stock ​ 33,568 ​ 0 ​ 0 ​ 33,568 ​ 33,916 ​ 0 ​ 0 ​ 33,916 Other equity securities, at adjusted cost ​ 3,408 ​ 750 ​ 0 ​ 4,158 ​ 2,562 ​ 750 ​ 0 ​ 3,312 Total equity and other securities ​ $ 55,665 ​ $ 948 ​ $ 10 ​ $ 56,603 ​ $ 43,917 ​ $ 962 ​ $ 0 ​ $ 44,879 ​ A summary of investment securities that have been in a continuous unrealized loss position is as follows: As of September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 Months 12 Months or Longer Total ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized (000’s omitted) # Value Losses # Value Losses # Value Losses Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 76 ​ $ 2,797,064 ​ $ 321,932 ​ 51 ​ $ 1,478,376 ​ $ 505,681 ​ 127 ​ $ 4,275,440 ​ $ 827,613 Obligations of state and political subdivisions ​ 701 ​ 407,699 ​ 65,889 ​ 27 ​ 17,786 ​ 6,161 ​ 728 ​ 425,485 ​ 72,050 Government agency mortgage-backed securities ​ 636 ​ 241,348 ​ 30,136 ​ 142 ​ 140,785 ​ 34,838 ​ 778 ​ 382,133 ​ 64,974 Corporate debt securities ​ 1 ​ ​ 2,746 ​ ​ 254 ​ 1 ​ ​ 4,287 ​ ​ 713 ​ 2 ​ ​ 7,033 ​ ​ 967 Government agency collateralized mortgage obligations ​ 37 ​ 11,761 ​ 634 ​ 10 ​ 1,623 ​ 171 ​ 47 ​ 13,384 ​ 805 Total available-for-sale investment portfolio ​ 1,451 ​ $ 3,460,618 ​ $ 418,845 ​ 231 ​ $ 1,642,857 ​ $ 547,564 ​ 1,682 ​ $ 5,103,475 ​ $ 966,409 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity and other Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value 1 ​ $ 91 ​ $ 10 0 ​ $ 0 ​ $ 0 1 ​ $ 91 ​ $ 10 Total equity and other securities 1 ​ $ 91 ​ $ 10 0 ​ $ 0 ​ $ 0 1 ​ $ 91 ​ $ 10 ​ 14 Table of Contents As of December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 Months 12 Months or Longer Total ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized (000’s omitted) # Value Losses # Value Losses # Value Losses Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 47 ​ $ 1,224,101 ​ $ 14,873 ​ 13 ​ $ 900,462 ​ $ 91,184 ​ 60 ​ $ 2,124,563 ​ $ 106,057 Obligations of state and political subdivisions ​ 27 ​ 23,966 ​ 56 ​ 0 ​ 0 ​ 0 ​ 27 ​ 23,966 ​ 56 Government agency mortgage-backed securities ​ 147 ​ 139,442 ​ 2,475 ​ 52 ​ 67,273 ​ 2,590 ​ 199 ​ 206,715 ​ 5,065 Corporate debt securities ​ 1 ​ ​ 4,923 ​ ​ 77 ​ 0 ​ ​ 0 ​ ​ 0 ​ 1 ​ ​ 4,923 ​ ​ 77 Government agency collateralized mortgage obligations ​ 18 ​ 3,146 ​ 24 ​ 1 ​ 53 ​ 0 ​ 19 ​ 3,199 ​ 24 Total available-for-sale investment portfolio ​ 240 ​ $ 1,395,578 ​ $ 17,505 ​ 66 ​ $ 967,788 ​ $ 93,774 ​ 306 ​ $ 2,363,366 ​ $ 111,279 ​ The unrealized losses reported pertaining to securities issued by the U.S. government and its sponsored entities include treasuries, agencies, and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, which are currently rated AAA by Moody’s Investor Services, AA+ by Standard & Poor’s and are guaranteed by the U.S. government. The majority of the obligations of state and political subdivisions carry a credit rating of A- or better 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 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. Timely principal and interest payments continue to be made on the securities. The unrealized losses in the portfolios are primarily attributable to changes in interest rates. As such, management does not believe any individual unrealized loss as of 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. Securities not due at a single maturity date, including government agency mortgage-backed securities and government agency collateralized mortgage obligations, are shown separately. ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-Sale ​ ​ Amortized ​ Fair (000’s omitted) Cost Value Due in one year or less ​ $ 546,740 ​ $ 541,161 Due after one through five years ​ 1,420,259 ​ 1,297,201 Due after five years through ten years ​ 2,055,716 ​ 1,762,074 Due after ten years ​ 1,649,802 ​ 1,171,947 Subtotal ​ 5,672,517 ​ 4,772,383 Government agency mortgage-backed securities ​ 449,808 ​ 384,891 Government agency collateralized mortgage obligations ​ 14,219 ​ 13,415 Total ​ $ 6,136,544 ​ $ 5,170,689 ​ 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 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. ​ 15 Table of Contents NOTE E: LOANS AND ALLOWANCE FOR CREDIT LOSSES The segments of the Company’s loan portfolio are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (000’s omitted) 2022 2021 Business lending ​ $ 3,494,425 ​ $ 3,075,904 Consumer mortgage ​ 2,975,521 ​ 2,556,114 Consumer indirect ​ 1,461,235 ​ 1,189,749 Consumer direct ​ 179,399 ​ 153,811 Home equity ​ 433,027 ​ 398,061 Gross loans, including deferred origination costs ​ 8,543,607 ​ 7,373,639 Allowance for credit losses ​ ( 60,363 ) ​ ( 49,869 ) Loans, net of allowance for credit losses ​ $ 8,483,244 ​ $ 7,323,770 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 – 89 ​ Due and ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ (000’s omitted) Days Still Accruing Nonaccrual Past Due Current Total Loans Business lending ​ $ 1,039 ​ $ 0 ​ $ 4,848 ​ $ 5,887 ​ $ 3,488,538 ​ $ 3,494,425 Consumer mortgage ​ 12,138 ​ 3,997 ​ 20,890 ​ 37,025 ​ 2,938,496 ​ 2,975,521 Consumer indirect ​ 11,938 ​ 215 ​ 0 ​ 12,153 ​ 1,449,082 ​ 1,461,235 Consumer direct ​ 956 ​ 38 ​ 29 ​ 1,023 ​ 178,376 ​ 179,399 Home equity ​ 1,761 ​ 166 ​ 2,309 ​ 4,236 ​ 428,791 ​ 433,027 Total ​ $ 27,832 ​ $ 4,416 ​ $ 28,076 ​ $ 60,324 ​ $ 8,483,283 ​ $ 8,543,607 ​ The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 – 89 ​ Due and ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ (000’s omitted) Days Still Accruing Nonaccrual Past Due Current Total Loans Business lending ​ $ 5,540 ​ $ 99 ​ $ 24,105 ​ $ 29,744 ​ $ 3,046,160 ​ $ 3,075,904 Consumer mortgage ​ 10,297 ​ 3,328 ​ 15,027 ​ 28,652 ​ 2,527,462 ​ 2,556,114 Consumer indirect ​ 9,611 ​ 87 ​ 0 ​ 9,698 ​ 1,180,051 ​ 1,189,749 Consumer direct ​ 796 ​ 22 ​ 1 ​ 819 ​ 152,992 ​ 153,811 Home equity ​ 1,778 ​ 272 ​ 2,532 ​ 4,582 ​ 393,479 ​ 398,061 Total ​ $ 28,022 ​ $ 3,808 ​ $ 41,665 ​ $ 73,495 ​ $ 7,300,144 ​ $ 7,373,639 ​ 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. ​ 16 Table of Contents The Company uses several credit quality indicators to assess credit risk in an ongoing manner. The Company’s primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as “pass”, “special mention”, “classified”, or “doubtful”. Credit risk ratings are applied to loans individually based on a case-by-case evaluation. In general, the following are the definitions of the Company’s credit quality indicators: ​ ​ ​ Pass ​ The condition of the borrower and the performance of the loans are satisfactory or better. Special Mention ​ The condition of the borrower has deteriorated although the loan performs as agreed. Loss may be incurred at some future date, if conditions deteriorate further. Classified ​ The condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate and incur loss, if deficiencies are not corrected. Doubtful ​ The condition of the borrower has deteriorated to the point that collection of the balance is improbable based on current facts and conditions and loss is likely. ​ 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ ​ ​ September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total Business lending: ​ ​ ​ ​ ​ ​ ​ ​ Risk rating ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 617,776 ​ $ 422,638 ​ $ 306,960 ​ $ 325,181 ​ $ 249,442 ​ $ 710,320 ​ $ 636,686 ​ $ 3,269,003 Special mention ​ 2,236 ​ 5,229 ​ 3,988 ​ 4,442 ​ 13,155 ​ 64,432 ​ 31,447 ​ 124,929 Classified ​ 836 ​ 948 ​ 1,259 ​ 3,840 ​ 28,498 ​ 56,395 ​ 8,717 ​ 100,493 Doubtful ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Total business lending ​ $ 620,848 ​ $ 428,815 ​ $ 312,207 ​ $ 333,463 ​ $ 291,095 ​ $ 831,147 ​ $ 676,850 ​ $ 3,494,425 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ ​ ​ December 31, 2021 2021 2020 2019 2018 2017 Prior Cost Basis Total Business lending: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Risk rating ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 524,302 ​ $ 328,885 ​ $ 320,638 ​ $ 248,175 ​ $ 186,074 ​ $ 584,912 ​ $ 524,553 ​ $ 2,717,539 Special mention ​ 5,969 ​ 11,013 ​ 10,111 ​ 46,318 ​ 22,524 ​ 57,134 ​ 27,444 ​ 180,513 Classified ​ 1,870 ​ 1,767 ​ 20,315 ​ 40,235 ​ 21,904 ​ 63,685 ​ 27,511 ​ 177,287 Doubtful ​ 0 ​ 0 ​ 0 ​ 62 ​ 0 ​ 0 ​ 503 ​ 565 Total business lending ​ $ 532,141 ​ $ 341,665 ​ $ 351,064 ​ $ 334,790 ​ $ 230,502 ​ $ 705,731 ​ $ 580,011 ​ $ 3,075,904 ​ 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. All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming. Performing loans include loans classified as current as well as those classified as 30 - 89 days past due. Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans. 17 Table of Contents The following table details the balances in all other loan categories at September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ ​ ​ September 30, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Total Consumer mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO AB (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 346,061 ​ $ 516,066 ​ $ 231,558 ​ $ 182,908 ​ $ 103,874 ​ $ 629,948 ​ $ 1,799 ​ $ 2,012,214 Nonperforming ​ 0 ​ 0 ​ 392 ​ 422 ​ 407 ​ 4,619 ​ 0 ​ 5,840 Total FICO AB ​ 346,061 ​ 516,066 ​ 231,950 ​ 183,330 ​ 104,281 ​ 634,567 ​ 1,799 ​ 2,018,054 FICO CDE (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ 125,340 ​ 190,264 ​ 120,575 ​ 85,509 ​ 57,082 ​ 336,435 ​ 23,215 ​ 938,420 Nonperforming ​ 238 ​ 1,061 ​ 1,701 ​ 1,443 ​ 1,467 ​ 13,137 ​ 0 ​ 19,047 Total FICO CDE ​ 125,578 ​ 191,325 ​ 122,276 ​ 86,952 ​ 58,549 ​ 349,572 ​ 23,215 ​ 957,467 Total consumer mortgage ​ $ 471,639 ​ $ 707,391 ​ $ 354,226 ​ $ 270,282 ​ $ 162,830 ​ $ 984,139 ​ $ 25,014 ​ $ 2,975,521 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer indirect: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 620,692 ​ $ 453,478 ​ $ 143,702 ​ $ 115,304 ​ $ 62,534 ​ $ 65,310 ​ $ 0 ​ $ 1,461,020 Nonperforming ​ 26 ​ 135 ​ 35 ​ 8 ​ 11 ​ 0 ​ 0 ​ 215 Total consumer indirect ​ $ 620,718 ​ $ 453,613 ​ $ 143,737 ​ $ 115,312 ​ $ 62,545 ​ $ 65,310 ​ $ 0 ​ $ 1,461,235 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 72,531 ​ $ 52,234 ​ $ 19,832 ​ $ 15,548 ​ $ 7,045 ​ $ 5,615 ​ $ 6,527 ​ $ 179,332 Nonperforming ​ 0 ​ 0 ​ 5 ​ 1 ​ 29 ​ 12 ​ 20 ​ 67 Total consumer direct ​ $ 72,531 ​ $ 52,234 ​ $ 19,837 ​ $ 15,549 ​ $ 7,074 ​ $ 5,627 ​ $ 6,547 ​ $ 179,399 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 55,553 ​ $ 74,656 ​ $ 39,458 ​ $ 33,137 ​ $ 17,175 ​ $ 44,513 ​ $ 166,060 ​ $ 430,552 Nonperforming ​ 0 ​ 10 ​ 122 ​ 198 ​ 153 ​ 661 ​ 1,331 ​ 2,475 Total home equity ​ $ 55,553 ​ $ 74,666 ​ $ 39,580 ​ $ 33,335 ​ $ 17,328 ​ $ 45,174 ​ $ 167,391 ​ $ 433,027 (1) FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination. (2) FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk. ​ 18 Table of Contents The following table details the balances in all other loan categories at December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ ​ ​ December 31, 2021 2021 2020 2019 2018 2017 Prior Cost Basis Total Consumer mortgage: ​ ​ ​ ​ ​ ​ ​ ​ FICO AB (1) ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 514,680 ​ $ 229,039 ​ $ 183,469 ​ $ 113,618 ​ $ 116,417 ​ $ 566,129 ​ $ 0 ​ $ 1,723,352 Nonperforming ​ 0 ​ 266 ​ 0 ​ 131 ​ 435 ​ 3,236 ​ 0 ​ 4,068 Total FICO AB ​ 514,680 ​ 229,305 ​ 183,469 ​ 113,749 ​ 116,852 ​ 569,365 ​ 0 ​ 1,727,420 FICO CDE (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ 168,870 ​ 122,546 ​ 85,253 ​ 57,973 ​ 54,396 ​ 300,341 ​ 25,028 ​ 814,407 Nonperforming ​ 0 ​ 522 ​ 972 ​ 1,465 ​ 939 ​ 10,389 ​ 0 ​ 14,287 Total FICO CDE ​ 168,870 ​ 123,068 ​ 86,225 ​ 59,438 ​ 55,335 ​ 310,730 ​ 25,028 ​ 828,694 Total consumer mortgage ​ $ 683,550 ​ $ 352,373 ​ $ 269,694 ​ $ 173,187 ​ $ 172,187 ​ $ 880,095 ​ $ 25,028 ​ $ 2,556,114 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer indirect: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 590,857 ​ $ 204,529 ​ $ 182,458 ​ $ 107,683 ​ $ 39,385 ​ $ 64,750 ​ $ 0 ​ $ 1,189,662 Nonperforming ​ 0 ​ 34 ​ 0 ​ 24 ​ 17 ​ 12 ​ 0 ​ 87 Total consumer indirect ​ $ 590,857 ​ $ 204,563 ​ $ 182,458 ​ $ 107,707 ​ $ 39,402 ​ $ 64,762 ​ $ 0 ​ $ 1,189,749 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 72,584 ​ $ 28,905 ​ $ 24,770 ​ $ 12,340 ​ $ 4,396 ​ $ 4,575 ​ $ 6,218 ​ $ 153,788 Nonperforming ​ 0 ​ 4 ​ 18 ​ 1 ​ 0 ​ 0 ​ 0 ​ 23 Total consumer direct ​ $ 72,584 ​ $ 28,909 ​ $ 24,788 ​ $ 12,341 ​ $ 4,396 ​ $ 4,575 ​ $ 6,218 ​ $ 153,811 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 76,041 ​ $ 43,106 ​ $ 35,990 ​ $ 18,824 ​ $ 15,134 ​ $ 35,740 ​ $ 170,422 ​ $ 395,257 Nonperforming ​ 0 ​ 64 ​ 47 ​ 102 ​ 131 ​ 679 ​ 1,781 ​ 2,804 Total home equity ​ $ 76,041 ​ $ 43,170 ​ $ 36,037 ​ $ 18,926 ​ $ 15,265 ​ $ 36,419 ​ $ 172,203 ​ $ 398,061 (1) FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination. (2) FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk. ​ 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 September 30, 2022 and December 31, 2021 follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (000’s omitted) 2022 2021 Loans with allowance allocation ​ $ 0 ​ $ 7,102 Loans without allowance allocation ​ 3,232 ​ 7,417 Carrying balance ​ 3,232 ​ 14,519 Contractual balance ​ 4,201 ​ 16,963 Specifically allocated allowance ​ 0 ​ 566 ​ 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. 19 Table of Contents In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial standing and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. In accordance with the clarified guidance issued by the Office of the Comptroller of the Currency (“OCC”), loans that have been discharged in Chapter 7 bankruptcy, but not reaffirmed by the borrower, are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Company’s lien position against the underlying collateral remains unchanged. 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 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 (000’s omitted) ​ Nonaccrual ​ Accruing ​ Total ​ Nonaccrual ​ Accruing ​ Total ​ # Amount # Amount # Amount # Amount # Amount # Amount Business lending ​ 2 ​ $ 161 3 ​ $ 282 5 ​ $ 443 10 ​ $ 1,011 4 ​ $ 811 14 ​ $ 1,822 Consumer mortgage ​ 56 ​ 2,408 44 ​ 2,041 100 ​ 4,449 61 ​ 2,694 47 ​ 2,420 108 ​ 5,114 Consumer indirect ​ 0 ​ 0 59 ​ 628 59 ​ 628 0 ​ 0 72 ​ 829 72 ​ 829 Consumer direct ​ 0 ​ 0 11 ​ 4 11 ​ 4 0 ​ 0 16 ​ 7 16 ​ 7 Home equity ​ 9 ​ 116 10 ​ 217 19 ​ 333 10 ​ 235 12 ​ 232 22 ​ 467 Total ​ 67 ​ $ 2,685 127 ​ $ 3,172 194 ​ $ 5,857 81 ​ $ 3,940 151 ​ $ 4,299 232 ​ $ 8,239 ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Three Months Ended ​ ​ September 30, 2022 ​ September 30, 2021 ​ ​ Number of ​ Outstanding ​ Number of ​ Outstanding (000’s omitted) loans modified Balance loans modified Balance Business lending 0 ​ $ 0 5 ​ $ 1,925 Consumer mortgage 1 ​ 184 9 ​ 728 Consumer indirect 6 ​ 71 5 ​ 78 Consumer direct 2 ​ 3 1 ​ 2 Home equity 0 ​ 0 0 ​ 0 Total 9 ​ $ 258 20 ​ $ 2,733 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended Nine Months Ended ​ ​ September 30, 2022 ​ September 30, 2021 ​ ​ Number of ​ Outstanding ​ Number of ​ Outstanding (000’s omitted) loans modified Balance loans modified Balance Business lending ​ 0 ​ $ 0 ​ ​ 5 ​ $ 1,925 Consumer mortgage 5 ​ 459 ​ 19 ​ 1,193 Consumer indirect 12 ​ 127 ​ 17 ​ 222 Consumer direct 2 ​ 3 ​ 2 ​ 8 Home equity 1 ​ 6 ​ 0 ​ 0 Total 20 $ 595 ​ 43 $ 3,348 ​ 20 Table of Contents Allowance for Credit Losses 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning ​ Charge- ​ ​ ​ ​ ​ ​ ​ Ending (000’s omitted) balance offs Recoveries Provision balance Business lending ​ $ 23,241 ​ $ ( 495 ) ​ $ 755 ​ $ 430 ​ $ 23,931 Consumer mortgage ​ 12,631 ​ ( 113 ) ​ 4 ​ 1,296 ​ 13,818 Consumer indirect ​ 14,378 ​ ( 1,706 ) ​ 1,386 ​ 2,960 ​ 17,018 Consumer direct ​ 2,822 ​ ( 342 ) ​ 174 ​ 361 ​ 3,015 Home equity ​ 1,470 ​ ( 32 ) ​ 11 ​ 132 ​ 1,581 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 55,542 ​ ( 2,688 ) ​ 2,330 ​ 5,179 ​ 60,363 Liabilities for off-balance-sheet credit exposures ​ 1,223 ​ 0 ​ 0 ​ ( 118 ) ​ 1,105 Total allowance for credit losses ​ $ 56,765 ​ $ ( 2,688 ) ​ $ 2,330 ​ $ 5,061 ​ $ 61,468 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ Beginning Charge- ​ ​ Ending (000’s omitted) ​ balance ​ offs ​ Recoveries ​ Provision ​ balance Business lending ​ $ 25,302 ​ $ ( 872 ) ​ $ 204 ​ $ ( 2,315 ) ​ $ 22,319 Consumer mortgage ​ 10,001 ​ ( 127 ) ​ 3 ​ ( 132 ) ​ 9,745 Consumer indirect ​ 11,103 ​ ( 1,365 ) ​ 973 ​ 1,334 ​ 12,045 Consumer direct ​ 2,548 ​ ( 309 ) ​ 163 ​ 268 ​ 2,670 Home equity ​ 1,796 ​ ( 30 ) ​ 10 ​ ( 56 ) ​ 1,720 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 51,750 ​ ( 2,703 ) ​ 1,353 ​ ( 901 ) ​ 49,499 Liabilities for off-balance-sheet credit exposures ​ 762 ​ 0 ​ 0 ​ ( 43 ) ​ 719 Total allowance for credit losses ​ $ 52,512 ​ $ ( 2,703 ) ​ $ 1,353 ​ $ ( 944 ) ​ $ 50,218 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PCD ​ ​ ​ ​ ​ ​ ​ ​ Beginning ​ Charge- ​ ​ ​ ​ Allowance at ​ ​ ​ ​ Ending (000’s omitted) balance offs Recoveries Acquisition Provision balance Business lending ​ $ 22,995 ​ $ ( 650 ) ​ $ 1,249 ​ $ 71 ​ $ 266 ​ $ 23,931 Consumer mortgage ​ ​ 10,017 ​ ​ ( 230 ) ​ ​ 21 ​ ​ 0 ​ ​ 4,010 ​ ​ 13,818 Consumer indirect ​ 11,737 ​ ( 5,183 ) ​ 3,732 ​ 0 ​ 6,732 ​ 17,018 Consumer direct ​ 2,306 ​ ( 859 ) ​ 577 ​ 0 ​ 991 ​ 3,015 Home equity ​ 1,814 ​ ( 69 ) ​ 132 ​ 0 ​ ( 296 ) ​ 1,581 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 49,869 ​ ( 6,991 ) ​ 5,711 ​ 71 ​ 11,703 ​ 60,363 Liabilities for off-balance-sheet credit exposures ​ 803 ​ 0 ​ 0 ​ 0 ​ 302 ​ 1,105 Total allowance for credit losses ​ $ 50,672 ​ $ ( 6,991 ) ​ $ 5,711 ​ $ 71 ​ $ 12,005 ​ $ 61,468 ​ 21 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ Beginning ​ Charge- ​ ​ ​ ​ ​ ​ ​ Ending (000’s omitted) balance offs Recoveries Provision balance Business lending ​ $ 30,072 ​ $ ( 925 ) ​ $ 586 ​ $ ( 7,414 ) ​ $ 22,319 Consumer mortgage ​ 10,672 ​ ( 369 ) ​ 22 ​ ( 580 ) ​ 9,745 Consumer indirect ​ 13,696 ​ ( 3,514 ) ​ 3,402 ​ ( 1,539 ) ​ 12,045 Consumer direct ​ 3,207 ​ ( 822 ) ​ 607 ​ ( 322 ) ​ 2,670 Home equity ​ 2,222 ​ ( 145 ) ​ 19 ​ ( 376 ) ​ 1,720 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 60,869 ​ ( 5,775 ) ​ 4,636 ​ ( 10,231 ) ​ 49,499 Liabilities for off-balance-sheet credit exposures ​ 1,489 ​ 0 ​ 0 ​ ( 770 ) ​ 719 Total allowance for credit losses ​ $ 62,358 ​ $ ( 5,775 ) ​ $ 4,636 ​ $ ( 11,001 ) ​ $ 50,218 ​ 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. 2016-13, Financial Instruments – Credit Losses (Topic 326) , also referred to as “CECL”, the Company utilizes the historical loss rate on its loan portfolio as the initial basis for the estimate of credit losses using the cumulative loss, vintage loss and line loss methods, which is derived from the Company’s historical loss experience from January 1, 2012 to December 31, 2020. Adjustments to historical loss experience were made for differences in current loan-specific risk characteristics and to address current period delinquencies, charge-off rates, risk ratings, lack of loan level data through an entire economic cycle, changes in loan sizes and underwriting standards, as well as the addition of acquired loans which were not underwritten by the Company. The Company considered historical losses immediately prior, through and following the Great Recession of 2008 compared to the historical period used for modeling to adjust the historical information to account for longer-term expectations for loan credit performance. Under CECL, the Company is required to consider future economic conditions to determine current expected credit losses. Management selected an eight-quarter reasonable and supportable forecast period using a two-quarter lag adjustment for economic factors that are not dependent on collateral values, and no lag adjustment for factors that do utilize collateral values, with a four-quarter reversion to the historical mean, to use as part of the economic forecast. Management determined that these qualitative adjustments were needed to adjust historical information for expected losses and to reflect changes as a result of current conditions. For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that are weighted, with forecasts available as of 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, 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: ● Business lending – non real estate: The Company selected projected unemployment and GDP as indicators of forecasted losses related to business lending, and utilize both factors in an even weight for the calculation. The Company also considered delinquencies, the level of loan deferrals, risk rating changes, recent charge-off history and acquired loans as part of the estimation of credit losses. ● Business lending – real estate: The Company selected projected unemployment and commercial real estate values as indicators of forecasted losses related to commercial real estate loans, and utilize both factors in an even weight for the calculation. The Company also considered the factors noted in business lending – non real estate. 22 Table of Contents ● Consumer mortgages and home equity: The Company selected projected unemployment and residential real estate values as indicators of forecasted losses related to mortgage lending, and utilize both factors in an even weight for the calculation. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered. ● Consumer indirect: The Company selected projected unemployment and vehicle valuation indices as indicators of forecasted losses related to indirect lending, and utilize both factors in an even weight for the calculation. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered. ● Consumer direct: The Company selected projected unemployment and inflation-adjusted household income as indicators of forecasted losses related to consumer direct lending, and utilize both factors in an even weight for the calculation. In addition, current delinquencies, 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 nine months ended September 30, 2022 by portfolio segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business ​ Consumer ​ Consumer ​ Consumer ​ Home ​ ​ ​ (000’s omitted) lending mortgage indirect direct equity Total Purchases ​ $ 125,288 ​ $ 271,408 ​ $ 9,383 ​ $ 12,511 ​ $ 18,429 ​ $ 437,019 Sales ​ ​ 0 ​ ​ 4,541 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 4,541 ​ All purchases of loans were from the acquisition of Elmira. All the sales of consumer mortgages during the nine months ended September 30, 2022 were sales of secondary market eligible residential mortgage loans. ​ NOTE F: GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 December 31, 2021 ​ ​ Gross ​ ​ ​ ​ Net ​ Gross ​ ​ ​ ​ Net ​ Carrying Accumulated Carrying Carrying Accumulated Carrying (000’s omitted) ​ Amount Amortization Amount Amount Amortization Amount Amortizing intangible assets: ​ ​ ​ ​ ​ ​ ​ Core deposit intangibles ​ $ 77,373 ​ $ ( 63,823 ) ​ $ 13,550 ​ $ 69,403 ​ $ ( 60,316 ) ​ $ 9,087 Other intangibles ​ 119,263 ​ ( 68,573 ) ​ 50,690 ​ 116,799 ​ ( 60,660 ) ​ 56,139 Total amortizing intangibles ​ $ 196,636 ​ $ ( 132,396 ) ​ $ 64,240 ​ $ 186,202 ​ $ ( 120,976 ) ​ $ 65,226 ​ The estimated aggregate amortization expense for each of the five succeeding fiscal years ended December 31 is as follows: ​ ​ ​ ​ ​ (000’s omitted) Oct - Dec 2022 ​ $ 3,771 2023 ​ ​ 13,567 2024 ​ 11,482 2025 ​ 9,783 2026 ​ 8,685 Thereafter ​ 16,952 Total ​ $ 64,240 ​ Shown below are the components of the Company’s goodwill at December 31, 2021 and September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) December 31, 2021 Activity September 30, 2022 Goodwill ​ $ 799,109 ​ $ 45,875 ​ $ 844,984 ​ ​ 23 Table of Contents NOTE G: MANDATORILY REDEEMABLE PREFERRED SECURITIES 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. The trust was formed for the purpose of issuing company-obligated mandatorily redeemable preferred securities to third-party investors and investing the proceeds from the sale of such preferred securities solely in junior subordinated debt securities of the Company. ​ ​ NOTE H: BENEFIT PLANS The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors. The Company accrues for the estimated cost of these benefits through charges to expense during the years that employees earn these benefits. The service cost component of net periodic benefit income is included in the salaries and employee benefits line of the consolidated statements of income, while the other components of net periodic benefit income are included in other expenses. The Company made a $ 0.1 million contribution to its defined benefit pension plan in the first quarter of 2022. 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 nine months ended September 30, 2022 and 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ Post-retirement Benefits ​ ​ Three Months Ended ​ Nine Months Ended ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, (000’s omitted) 2022 2021 2022 2021 2022 2021 ​ ​ 2022 2021 Service cost ​ $ 1,240 ​ $ 1,480 ​ $ 3,720 ​ $ 4,440 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 Interest cost ​ ​ 1,334 ​ ​ 1,259 ​ ​ 4,002 ​ ​ 3,777 ​ ​ 11 ​ ​ 11 ​ ​ 33 ​ ​ 33 Expected return on plan assets ​ ( 4,756 ) ​ ( 4,696 ) ​ ​ ( 14,268 ) ​ ​ ( 14,087 ) ​ 0 ​ 0 ​ ​ 0 ​ 0 Amortization of unrecognized net loss ​ 211 ​ 900 ​ ​ 633 ​ ​ 2,700 ​ 9 ​ 11 ​ ​ 27 ​ 33 Amortization of prior service cost ​ 154 ​ 95 ​ ​ 462 ​ ​ 284 ​ ( 45 ) ​ ( 45 ) ​ ​ ( 135 ) ​ ( 134 ) Net periodic benefit ​ $ ( 1,817 ) ​ $ ( 962 ) ​ $ ( 5,451 ) ​ $ ( 2,886 ) ​ $ ( 25 ) ​ $ ( 23 ) ​ $ ( 75 ) ​ $ ( 68 ) ​ ​ NOTE I: EARNINGS PER SHARE The two class method is used in the calculations of basic and diluted earnings per share. Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings. The Company has determined that all of its outstanding non-vested stock awards are participating securities as of September 30, 2022. Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period. Diluted earnings per share are based on the weighted-average of the shares outstanding and the assumed exercise of stock options during the year. The dilutive effect of options is calculated using the treasury stock method of accounting. The treasury stock method determines the number of common shares that would be outstanding if all the dilutive options were exercised and the proceeds were used to repurchase common shares in the open market at the average market price for the applicable time period. 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. 24 Table of Contents 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, (000’s omitted, except per share data) 2022 2021 2022 2021 Net income ​ $ 48,691 ​ $ 45,336 ​ $ 135,551 ​ $ 146,130 Income attributable to unvested stock-based compensation awards ​ ( 142 ) ​ ( 110 ) ​ ( 386 ) ​ ( 340 ) Income available to common shareholders ​ $ 48,549 ​ $ 45,226 ​ $ 135,165 ​ $ 145,790 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding – basic ​ 53,830 ​ 54,025 ​ 53,915 ​ 53,960 Basic earnings per share ​ $ 0.90 ​ $ 0.84 ​ $ 2.51 ​ $ 2.70 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 48,691 ​ $ 45,336 ​ $ 135,551 ​ $ 146,130 Income attributable to unvested stock-based compensation awards ​ ( 142 ) ​ ( 110 ) ​ ( 386 ) ​ ( 340 ) Income available to common shareholders ​ $ 48,549 ​ $ 45,226 ​ $ 135,165 ​ $ 145,790 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding – basic ​ 53,830 ​ 54,025 ​ 53,915 ​ 53,960 Assumed exercise of stock options ​ 302 ​ 385 ​ 328 ​ 431 Weighted-average common shares outstanding – diluted ​ 54,132 ​ 54,410 ​ 54,243 ​ 54,391 Diluted earnings per share ​ $ 0.90 ​ $ 0.83 ​ $ 2.49 ​ $ 2.68 ​ Stock Repurchase Program At its December 2020 meeting, the Company’s Board of Directors (the “Board”) approved a stock repurchase program authorizing the repurchase of up to 2.68 million shares of the Company’s common stock, in accordance with securities and banking laws and regulations, through December 31, 2021. At its December 2021 meeting, the Board approved a new stock repurchase program for 2022, authorizing the repurchase of up to 2.70 million shares of the Company’s common stock, in accordance with securities and banking laws and regulations, through December 31, 2022. Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities. The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company’s discretion. 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: Unregistered Sales of Equity Securities and Use of Proceeds for additional information regarding repurchases of the Company’s common stock. ​ NOTE J: COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to the Company’s normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. The fair value of the standby letters of credit is immaterial for disclosure. The contract amounts of commitments and contingencies are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (000’s omitted) ​ 2022 ​ 2021 Commitments to extend credit ​ $ 1,561,281 ​ $ 1,443,879 Standby letters of credit ​ 51,635 ​ 42,684 Total ​ $ 1,612,916 ​ $ 1,486,563 ​ 25 Table of Contents 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 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. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable, beyond the existing recorded liabilities, is believed to be between $ 0 and $ 1 million in the aggregate. This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties. 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. ​ NOTE K: FAIR VALUE Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. exit price). Inputs used to measure fair value are classified into the following hierarchy: ● Level 1 - Quoted prices in active markets for identical assets or liabilities. ● Level 2 - Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. ● Level 3 - Significant valuation assumptions not readily observable in a market. ​ A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis. There were no transfers between any of the levels for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) Level 1 Level 2 Level 3 Value Available-for-sale investment securities: ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 4,206,653 ​ $ 68,787 ​ $ 0 ​ $ 4,275,440 Obligations of state and political subdivisions ​ 0 ​ 489,910 ​ 0 ​ 489,910 Government agency mortgage-backed securities ​ 0 ​ 384,891 ​ 0 ​ 384,891 Corporate debt securities ​ 0 ​ 7,033 ​ 0 ​ 7,033 Government agency collateralized mortgage obligations ​ 0 ​ 13,415 ​ 0 ​ 13,415 Total available-for-sale investment securities ​ 4,206,653 ​ 964,036 ​ 0 ​ 5,170,689 Equity securities ​ 439 ​ 0 ​ 0 ​ 439 Commitments to originate real estate loans for sale ​ ​ 0 ​ ​ 0 ​ ​ ( 32 ) ​ ​ ( 32 ) Forward sales commitments ​ ​ 0 ​ ​ 15 ​ ​ 0 ​ ​ 15 Interest rate swap agreements asset ​ 0 ​ 2 ​ 0 ​ 2 Interest rate swap agreements liability ​ 0 ​ ( 2 ) ​ 0 ​ ( 2 ) Total ​ $ 4,207,092 ​ $ 964,051 ​ $ ( 32 ) ​ $ 5,171,111 ​ 26 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) Level 1 Level 2 Level 3 Value Available-for-sale investment securities: ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 3,900,924 ​ $ 97,640 ​ $ 0 ​ $ 3,998,564 Obligations of state and political subdivisions ​ 0 ​ 430,289 ​ 0 ​ 430,289 Government agency mortgage-backed securities ​ 0 ​ 477,056 ​ 0 ​ 477,056 Corporate debt securities ​ 0 ​ 7,962 ​ 0 ​ 7,962 Government agency collateralized mortgage obligations ​ 0 ​ 20,339 ​ 0 ​ 20,339 Total available-for-sale investment securities ​ 3,900,924 ​ 1,033,286 ​ 0 ​ 4,934,210 Equity securities ​ 463 ​ 0 ​ 0 ​ 463 Commitments to originate real estate loans for sale ​ ​ 0 ​ ​ 0 ​ ​ 51 ​ ​ 51 Forward sales commitments ​ ​ 0 ​ ​ 32 ​ ​ 0 ​ ​ 32 Interest rate swap agreements asset ​ 0 ​ 296 ​ 0 ​ 296 Interest rate swap agreements liability ​ 0 ​ ( 3 ) ​ ​ 0 ​ ( 3 ) Total ​ $ 3,901,387 ​ $ 1,033,611 ​ $ 51 ​ $ 4,935,049 ​ The valuation techniques used to measure fair value for the items in the table above are as follows: ● Available-for-sale investment securities and equity securities – The fair values of available-for-sale investment securities are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques. Level 1 securities include U.S. Treasury obligations and marketable equity securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include U.S. agency securities, mortgage-backed securities issued by government-sponsored entities, municipal securities and corporate debt securities that are valued by reference to prices for similar securities or through model-based techniques in which all significant inputs, such as reported trades, trade execution data, LIBOR swap yield curve, market prepayment speeds, credit information, market spreads, and security’s terms and conditions, are observable. See Note D for further disclosure of the fair value of investment securities. ● Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated statements of condition. The fair value of these forward sales commitments is primarily measured by obtaining pricing from certain government-sponsored entities and reflects the underlying price the entity would pay the Company for an immediate sale on these mortgages. As such, these instruments are classified as Level 2 in the fair value hierarchy. ● Commitments to originate real estate loans for sale – The Company enters into various commitments to originate residential real estate loans for sale. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated statements of condition. The estimated fair value of these commitments is determined using quoted secondary market prices obtained from certain government-sponsored entities. Additionally, accounting guidance requires the expected net future cash flows related to the associated servicing of the loan to be included in the fair value measurement of the derivative. The expected net future cash flows are based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Such assumptions include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds. The determination of expected net cash flows is considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale. ● Interest rate swaps – The interest rate swaps are reported at their fair value utilizing Level 2 inputs from third parties. The fair value of the interest rate swaps are determined using prices obtained from a third party advisor. The fair value measurement of the interest rate swap is determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates derived from observed market interest rate curves. 27 Table of Contents The changes in Level 3 assets measured at fair value on a recurring basis are immaterial. The fair value information of assets and liabilities measured on a non-recurring basis presented below is not as of the period-end, but rather as of the date the fair value adjustment was recorded closest to the date presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ Total Fair ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) ​ Level 1 ​ Level 2 ​ Level 3 ​ Value ​ Level 1 ​ Level 2 ​ Level 3 ​ Value Individually assessed loans ​ $ 0 ​ $ 0 ​ $ 0 $ 0 ​ $ 0 ​ $ 0 ​ $ 1,820 $ 1,820 Other real estate owned ​ 0 ​ 0 ​ 527 527 ​ 0 ​ 0 ​ 718 718 Mortgage servicing rights ​ 0 ​ 0 ​ 1,844 1,844 ​ 0 ​ 0 ​ 810 810 Contingent consideration ​ ​ 0 ​ ​ 0 ​ ​ ( 3,500 ) ​ ​ ( 3,500 ) ​ ​ 0 ​ ​ 0 ​ ​ ( 3,100 ) ​ ​ ( 3,100 ) Total ​ $ 0 ​ $ 0 ​ $ ( 1,129 ) $ ( 1,129 ) ​ $ 0 ​ $ 0 ​ $ 248 $ 248 ​ Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, adjusted for non-observable inputs. Thus, the resulting nonrecurring fair value measurements are generally classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and, therefore, such valuations classify as Level 3. Other real estate owned (“OREO”) is valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the customer and customer’s business. Such discounts are significant, ranging from 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. The Company recovers the carrying value of OREO through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond the Company’s control and may impact the estimated fair value of a property. Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the estimated period of net servicing income. The fair value of mortgage servicing rights is based on a valuation model incorporating inputs that market participants would use in estimating future net servicing income. Such inputs include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds and are considered to be unobservable and contribute to the Level 3 classification of mortgage servicing rights. In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of a stratum exceeds its estimated fair value. Impairment is recognized through a valuation allowance. 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. The contingent consideration is recorded at fair value at the date of acquisition. The valuation of contingent consideration is calculated using an income approach method, which provides an estimation of the fair value of the liability based on future cash flows over a discrete projection period, discounted to present value using an appropriate rate of return. The assumptions used in the valuation calculation are based on significant unobservable inputs, therefore such valuations classify as Level 3. 28 Table of Contents The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques. Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ Unobservable Input ​ ​ Fair Value at ​ ​ ​ ​ ​ Range ​ (000’s omitted, except per loan data) ​ September 30, 2022 ​ Valuation Technique ​ Significant Unobservable Inputs (Weighted Average) ​ Other real estate owned ​ $ 527 Fair value of collateral Estimated cost of disposal/market adjustment ​ 23.2 % - 73.5 % ( 39.9 %) ​ Commitments to originate real estate loans for sale ​ ( 32 ) Discounted cash flow Embedded servicing value ​ 1.0 % Mortgage servicing rights ​ 1,844 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 ​ $ 7 /loan ​ Contingent consideration ​ ​ ( 3,500 ) ​ Discounted cash flow ​ Discount rate ​ ​ 4.4 % - 4.6 % ( 4.5 %) ​ ​ ​ ​ ​ ​ ​ ​ Probability adjusted level of retained revenue ​ ​ $ 3.3 million - $ 5.4 million ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ Unobservable Input ​ ​ ​ Fair Value at ​ ​ ​ ​ ​ Range ​ (000's omitted, except per loan data) ​ December 31, 2021 ​ Valuation Technique ​ Significant Unobservable Inputs ​ (Weighted Average) Individually assessed loans ​ $ 1,820 Fair value of collateral Estimated cost of disposal/market adjustment ​ 9.0 % - 43.1 % ( 43.1 %) ​ Other real estate owned ​ 718 Fair value of collateral Estimated cost of disposal/market adjustment ​ 31.8 % - 42.3 % ( 33.3 %) ​ Commitments to originate real estate loans for sale ​ ​ 51 ​ Discounted cash flow ​ Embedded servicing value ​ ​ 1.0 % Mortgage servicing rights ​ 810 Discounted cash flow Weighted average constant prepayment rate ​ 6.4 % - 15.2 % ( 14.0 %) ​ ​ ​ Weighted average discount rate ​ 2.3 % - 2.7 % ( 2.6 %) ​ ​ ​ ​ ​ ​ ​ Adequate compensation ​ $ 7 /loan ​ Contingent consideration ​ ​ ( 3,100 ) ​ Discounted cash flow ​ Discount rate ​ ​ 1.4 % - 1.7 % ( 1.5 %) ​ ​ ​ ​ ​ ​ ​ ​ Probability adjusted level of retained revenue ​ ​ $ 3.0 million - $ 5.8 million ​ ​ The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that if changed could result in higher or lower fair value measurements of these assets as of the reporting date. The weighted average of the estimated cost of disposal/market adjustment for individually assessed loans was calculated by dividing the total of the book value of the collateral of the individually assessed loans classified as Level 3 by the total of the fair value of the collateral of the individually assessed loans classified as Level 3. The weighted average of the estimated cost of disposal/market adjustment for OREO was calculated by dividing the total of the differences between the appraisal values of the real estate and the book values of the real estate divided by the totals of the appraisal values of the real estate. The weighted average of the constant prepayment rate for mortgage servicing rights was calculated by adding the constant prepayment rates used in each loan pool weighted by the balance in each loan pool. The weighted average of the discount rate for mortgage servicing rights was calculated by adding the discount rates used in each loan pool weighted by the balance in each loan pool. The weighted average of the discount rate for the contingent consideration was calculated by adding the discount rates used for the calculation of the fair value of each payment of contingent consideration, weighted by the amount of the payment as part of the total fair value of contingent consideration. 29 Table of Contents Certain financial instruments and all nonfinancial instruments are excluded from fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at September 30, 2022 and December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ December 31, 2021 ​ Carrying ​ Carrying ​ (000’s omitted) ​ Value ​ Fair Value ​ Value ​ Fair Value Financial assets: ​ ​ ​ ​ Net loans ​ $ 8,483,244 ​ $ 8,192,522 ​ $ 7,323,770 ​ $ 7,523,024 Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ 13,486,321 ​ 13,450,034 ​ 12,911,168 ​ 12,911,197 Overnight borrowings ​ 119,800 ​ 119,800 ​ 0 ​ 0 Securities sold under agreement to repurchase, short-term ​ 352,772 ​ 352,772 ​ 324,720 ​ 324,720 Other Federal Home Loan Bank borrowings ​ 19,472 ​ 19,201 ​ 1,888 ​ 1,907 Subordinated notes payable ​ 3,256 ​ 3,256 ​ 3,277 ​ 3,277 ​ The following is a further description of the principal valuation methods used by the Company to estimate the fair values of its financial instruments. Loans have been classified as a Level 3 valuation. Fair values for variable rate loans that reprice frequently are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Deposits have been classified as a Level 2 valuation. The fair value of demand deposits, interest-bearing checking deposits, savings accounts, and money market deposits is the amount payable on demand at the reporting date. The fair value of time deposit obligations are based on current market rates for similar products. Borrowings have been classified as a Level 2 valuation. The fair value of short-term borrowings and securities sold under agreement to repurchase, short-term, is the amount payable on demand at the reporting date. Fair values for long-term debt are estimated using discounted cash flows and interest rates currently being offered on similar securities. The difference between the carrying values of long-term borrowings and their fair values, are not material as of the reporting dates. Other financial assets and liabilities – Cash and cash equivalents have been classified as a Level 1 valuation, while accrued interest receivable and accrued interest payable have been classified as a Level 2 valuation. The fair values of each approximate the respective carrying values because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk. ​ 30 Table of Contents NOTE L: SEGMENT INFORMATION Operating segments are components of an enterprise, which are evaluated regularly by the “chief operating decision maker” in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is the President and Chief Executive Officer of the Company. The Company has identified Banking, Employee Benefit Services and All Other as its reportable operating business segments. Community Bank, N.A. (the “Bank” or “CBNA”) operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in Upstate New York as well as Northeastern Pennsylvania, Vermont and Western Massachusetts. Employee Benefit Services, which includes the operating subsidiaries Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC, BPAS Trust Company of Puerto Rico, Fringe Benefits Design of Minnesota, Inc. (“FBD”), Northeast Retirement Services, LLC (“NRS”), Global Trust Company, Inc. (“GTC”), and Hand Benefits & Trust Company, provides employee benefit trust, collective investment fund, retirement plan administration, fund administration, transfer agency, actuarial, VEBA/HRA, and health and welfare consulting services. The All Other segment is comprised of: (a) wealth management services including trust services provided by the personal trust unit within the Bank, broker-dealer and investment advisory services provided by Community Investment Services, Inc., The Carta Group, Inc. and OneGroup Wealth Partners, Inc. as well as asset management provided by Nottingham Advisors, Inc., and (b) full-service insurance, risk management and employee benefit services provided by OneGroup NY, Inc. The accounting policies used in the disclosure of business segments are the same as those described in the summary of significant accounting policies (See Note A, Summary of Significant Accounting Policies of the most recent Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022). Information about reportable segments and reconciliation of the information to the consolidated financial statements follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee ​ ​ ​ ​ ​ ​ ​ Consolidated (000’s omitted) Banking Benefit Services All Other Eliminations Total Three Months Ended September 30, 2022 ​ ​ ​ ​ ​ Net interest income ​ $ 110,311 ​ $ 75 ​ $ 8 ​ $ 0 ​ $ 110,394 Provision for credit losses ​ 5,061 ​ 0 ​ 0 ​ 0 ​ 5,061 Noninterest revenues ​ 19,427 ​ 28,451 ​ 19,210 ​ ( 1,839 ) ​ 65,249 Amortization of intangible assets ​ 1,266 ​ 1,633 ​ 938 ​ 0 ​ 3,837 Acquisition expenses ​ 409 ​ 0 ​ 0 ​ 0 ​ 409 Other operating expenses ​ 73,554 ​ 17,711 ​ 14,513 ​ ( 1,839 ) ​ 103,939 Income before income taxes ​ $ 49,448 ​ $ 9,182 ​ $ 3,767 ​ $ 0 ​ $ 62,397 Assets ​ $ 15,373,021 ​ $ 250,784 ​ $ 102,883 ​ $ ( 132,141 ) ​ $ 15,594,547 Goodwill ​ $ 735,680 ​ $ 85,381 ​ $ 23,923 ​ $ 0 ​ $ 844,984 Core deposit intangibles & Other intangibles ​ $ 13,550 ​ $ 35,045 ​ $ 15,645 ​ $ 0 ​ $ 64,240 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 92,539 ​ $ 65 ​ $ 7 ​ $ 0 ​ $ 92,611 Provision for credit losses ​ ( 944 ) ​ 0 ​ 0 ​ 0 ​ ( 944 ) Noninterest revenues ​ 17,696 ​ 30,473 ​ 17,885 ​ ( 1,745 ) ​ 64,309 Amortization of intangible assets ​ 1,102 ​ 1,675 ​ 926 ​ 0 ​ 3,703 Acquisition expenses ​ 102 ​ 0 ​ 0 ​ 0 ​ 102 Other operating expenses ​ 67,980 ​ 17,212 ​ 13,184 ​ ( 1,745 ) ​ 96,631 Income before income taxes ​ $ 41,995 ​ $ 11,651 ​ $ 3,782 ​ $ 0 ​ $ 57,428 Assets ​ $ 15,102,077 ​ $ 246,033 ​ $ 99,721 ​ $ ( 116,733 ) ​ $ 15,331,098 Goodwill ​ $ 689,868 ​ $ 85,336 ​ $ 23,923 ​ $ 0 ​ $ 799,127 Core deposit intangibles & Other intangibles ​ $ 10,165 ​ $ 41,695 ​ $ 17,117 ​ $ 0 ​ $ 68,977 ​ 31 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee ​ ​ ​ ​ Consolidated (000’s omitted) ​ Banking ​ Benefit Services ​ All Other ​ Eliminations ​ Total Nine Months Ended September 30, 2022 ​ ​ ​ ​ ​ Net interest income ​ $ 308,177 ​ $ 210 ​ $ 20 ​ $ 0 ​ $ 308,407 Provision for credit losses ​ 12,005 ​ 0 ​ 0 ​ 0 ​ 12,005 Noninterest revenues ​ 55,634 ​ 88,093 ​ 57,065 ​ ( 5,773 ) ​ 195,019 Amortization of intangible assets ​ 3,506 ​ 4,974 ​ 2,940 ​ 0 ​ 11,420 Acquisition expenses ​ 4,665 ​ 3 ​ 0 ​ 0 ​ 4,668 Acquisition-related contingent consideration adjustment ​ 0 ​ ( 100 ) ​ 500 ​ 0 ​ 400 Other operating expenses ​ 212,616 ​ 53,026 ​ 42,059 ​ ( 5,773 ) ​ 301,928 Income before income taxes ​ $ 131,019 ​ $ 30,400 ​ $ 11,586 ​ $ 0 ​ $ 173,005 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 278,411 ​ $ 224 ​ $ 35 ​ $ 0 ​ $ 278,670 Provision for credit losses ​ ( 11,001 ) ​ 0 ​ 0 ​ 0 ​ ( 11,001 ) Noninterest revenues ​ 50,507 ​ 85,616 ​ 51,518 ​ ( 5,341 ) ​ 182,300 Amortization of intangible assets ​ 3,666 ​ 4,356 ​ 2,278 ​ 0 ​ 10,300 Acquisition expenses ​ 133 ​ 0 ​ 0 ​ 0 ​ 133 Other operating expenses ​ 198,145 ​ 47,063 ​ 36,925 ​ ( 5,341 ) ​ 276,792 Income before income taxes ​ $ 137,975 ​ $ 34,421 ​ $ 12,350 ​ $ 0 ​ $ 184,746 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 32 Table of Contents