COMMUNITY FINANCIAL SYSTEM, INC. 10-K

Item 8. Financial Statements and Supplementary Data The following consolidated financial statements and independent registered public accounting firm’s report of Community Bank System, Inc. are contained on pages 71 through 134 of this item. · Consolidated Statements of Condition, December 31, 2022 and 2021 · Consolidated Statements of Income, Years ended December 31, 2022, 2021, and 2020 · Consolidated Statements of Comprehensive Income, Years ended December 31, 2022, 2021, and 2020 · Consolidated Statements of Changes in Shareholders’ Equity, Years ended December 31, 2022, 2021, and 2020 · Consolidated Statements of Cash Flows, Years ended December 31, 2022, 2021, and 2020 · Notes to Consolidated Financial Statements, December 31, 2022 · Management’s Report on Internal Control Over Financial Reporting · Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) ​ ​ 70 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CONDITION (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Assets: ​ ​ Cash and cash equivalents ​ $ 209,896 $ 1,875,064 Available-for-sale investment securities includes pledged securities that can be sold or repledged of $ 466,902 and $ 485,414 , respectively (cost of $ 4,675,474 and $ 4,980,102 , respectively) ​ 4,151,851 4,934,210 Held-to-maturity securities (fair value of $ 1,034,795 and $ 0 , respectively) ​ ​ 1,079,695 ​ ​ 0 Equity and other securities (cost of $ 82,424 and $ 43,917 , respectively) ​ 83,342 44,879 ​ ​ ​ ​ ​ ​ ​ Loans, net ​ 8,809,394 7,373,639 Allowance for credit losses ​ ( 61,059 ) ​ ( 49,869 ) Net loans ​ 8,748,335 7,323,770 ​ ​ ​ ​ ​ ​ ​ Goodwill ​ 841,841 799,109 Core deposit intangibles, net ​ 12,304 9,087 Other intangibles, net ​ 48,692 56,139 Goodwill and intangible assets, net ​ 902,837 864,335 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ 160,778 160,651 Accrued interest and fees receivable ​ 52,613 35,894 Other assets ​ 446,304 313,854 ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 15,835,651 $ 15,552,657 ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ Noninterest-bearing deposits ​ $ 4,140,617 $ 3,921,663 Interest-bearing deposits ​ 8,871,691 8,989,505 Total deposits ​ 13,012,308 12,911,168 ​ ​ ​ ​ ​ ​ ​ Overnight borrowings ​ 768,400 0 Securities sold under agreement to repurchase, short-term ​ 346,652 324,720 Other Federal Home Loan Bank borrowings ​ 19,474 1,888 Subordinated notes payable ​ 3,249 3,277 Accrued interest and other liabilities ​ 133,863 210,797 Total liabilities ​ 14,283,946 13,451,850 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (See Note N) ​ ​ ​ ​ ​ ​ ​ ​ 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; 54,190,201 and 54,092,421 shares issued, respectively ​ 54,190 54,092 Additional paid-in capital ​ 1,050,231 1,041,304 Retained earnings ​ 1,152,452 1,058,286 Accumulated other comprehensive loss ​ ( 686,439 ) ​ ( 50,627 ) Treasury stock, at cost ( 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022, and 214,374 shares including 146,860 shares held by deferred compensation arrangements at December 31, 2021) ​ ( 26,485 ) ​ ( 10,610 ) Deferred compensation arrangements ( 135,437 shares at December 31, 2022 and 146,860 shares at December 31, 2021) ​ 7,756 8,362 Total shareholders’ equity ​ 1,551,705 2,100,807 ​ ​ ​ ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,835,651 $ 15,552,657 ​ See accompanying notes to consolidated financial statements. ​ 71 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per-Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Interest income: ​ ​ ​ ​ Interest and fees on loans ​ $ 335,075 ​ $ 308,355 $ 314,779 Interest and dividends on taxable investments ​ 95,371 ​ 68,607 62,538 Interest and dividends on nontaxable investments ​ 13,283 ​ 10,458 11,961 Total interest income ​ 443,729 ​ 387,420 389,278 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense: ​ ​ Interest on deposits ​ 15,044 ​ 11,631 16,761 Interest on borrowings ​ 7,902 ​ 930 1,569 Interest on subordinated notes payable ​ 153 ​ 154 670 Interest on subordinated debt held by unconsolidated subsidiary trusts ​ 0 ​ 293 1,875 Total interest expense ​ 23,099 ​ 13,008 20,875 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ 420,630 ​ 374,412 368,403 Provision for credit losses ​ 14,773 ​ ( 8,839 ) 14,212 Net interest income after provision for credit losses ​ 405,857 ​ 383,251 354,191 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues: ​ ​ Deposit service fees ​ 66,850 ​ 59,212 57,370 Mortgage banking ​ ​ 390 ​ ​ 1,772 ​ ​ 5,301 Other banking services ​ 4,644 ​ 3,674 3,753 Employee benefit services ​ 115,408 ​ 114,328 101,329 Insurance services ​ 39,810 ​ 33,992 32,372 Wealth management services ​ 31,667 ​ 33,240 27,879 Unrealized (loss) gain on equity securities ​ ( 44 ) ​ 17 ( 6 ) Gain on debt extinguishment ​ 0 ​ 0 ​ 421 Total noninterest revenues ​ 258,725 ​ 246,235 228,419 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses: ​ ​ Salaries and employee benefits ​ 257,339 ​ 241,501 228,384 Occupancy and equipment ​ 42,413 ​ 41,240 40,732 Data processing and communications ​ 54,099 ​ 51,003 45,755 Amortization of intangible assets ​ 15,214 ​ 14,051 14,297 Legal and professional fees ​ 14,018 ​ 11,723 11,605 Business development and marketing ​ 13,095 ​ 9,319 9,463 Litigation accrual ​ ​ 0 ​ ​ ( 100 ) ​ ​ 2,950 Acquisition expenses ​ ​ 5,021 ​ ​ 701 ​ ​ 4,933 Acquisition-related contingent consideration adjustment ​ ​ ( 300 ) ​ ​ 200 ​ ​ 0 Other expenses ​ 23,369 ​ 18,500 18,415 Total noninterest expenses ​ 424,268 ​ 388,138 376,534 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 240,314 ​ 241,348 206,076 Income taxes ​ 52,233 ​ 51,654 41,400 Net income ​ $ 188,081 ​ $ 189,694 $ 164,676 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 3.48 ​ $ 3.51 $ 3.10 Diluted earnings per share ​ $ 3.46 ​ $ 3.48 $ 3.08 ​ See accompanying notes to consolidated financial statements. ​ 72 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension and other post retirement obligations: ​ ​ ​ Amortization of actuarial (losses) gains included in net periodic pension cost, gross ​ $ ( 21,587 ) ​ $ 17,443 ​ $ 8,379 Tax effect ​ 5,243 ( 4,192 ) ( 2,012 ) Amortization of actuarial (losses) gains included in net periodic pension cost, net ​ ( 16,344 ) ​ 13,251 ​ 6,367 Amortization of prior service cost included in net periodic pension cost, gross ​ 678 ​ 200 ​ ( 471 ) Tax effect ​ ( 165 ) ( 48 ) 113 Amortization of prior service cost included in net periodic pension cost, net ​ 513 ​ 152 ​ ( 358 ) Other comprehensive (loss) income related to pension and other post retirement obligations, net of taxes ​ ( 15,831 ) ​ 13,403 ​ 6,009 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized (losses) gains on investment securities: ​ Net unrealized holding (losses) gains on investment securities, gross ​ ( 818,890 ) ( 166,007 ) ​ 87,237 Tax effect ​ 198,909 ​ 39,900 ( 20,943 ) Other comprehensive (loss) gain related to unrealized (losses) gains on investment securities, net of taxes ​ ( 619,981 ) ​ ( 126,107 ) ​ 66,294 Other comprehensive (loss) income, net of tax ​ ( 635,812 ) ( 112,704 ) ​ 72,303 Net income ​ 188,081 189,694 164,676 Comprehensive (loss) income ​ $ ( 447,731 ) $ 76,990 $ 236,979 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2022 2021 2020 Accumulated Other Comprehensive (Loss) Income By Component: ​ ​ ​ Unrealized (loss) for pension and other postretirement obligations $ ( 41,533 ) ​ $ ( 20,624 ) ​ $ ( 38,267 ) Tax effect 10,232 5,154 9,394 Net unrealized (loss) for pension and other postretirement obligations ( 31,301 ) ​ ( 15,470 ) ​ ( 28,873 ) Unrealized (loss) gain on investment securities ( 864,783 ) ( 45,893 ) ​ 120,114 Tax effect 209,645 ​ 10,736 ( 29,164 ) Net unrealized (loss) gain on investment securities ( 655,138 ) ( 35,157 ) ​ 90,950 Accumulated other comprehensive (loss) income $ ( 686,439 ) ​ $ ( 50,627 ) ​ $ 62,077 ​ See accompanying notes to consolidated financial statements. ​ 73 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years ended December 31, 2020, 2021 and 2022 (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ Shares ​ Amount ​ Additional ​ Retained ​ Comprehensive ​ Treasury ​ Compensation ​ ​ ​ ​ Outstanding Issued Paid-in Capital Earnings (Loss)/Income Stock Arrangements Total Balance at December 31, 2019 51,793,923 ​ $ 51,975 ​ $ 927,337 ​ $ 882,851 ​ $ ( 10,226 ) ​ $ ( 6,823 ) ​ $ 10,120 ​ $ 1,855,234 Net income ​ ​ ​ ​ ​ 164,676 ​ ​ ​ ​ ​ 164,676 Other comprehensive income, net of tax ​ ​ ​ ​ ​ ​ 72,303 ​ ​ ​ 72,303 Cumulative effect of change in accounting principle – ASC 326 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,140 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,140 Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 1.66 per share ​ ​ ​ ​ ​ ( 88,484 ) ​ ​ ​ ​ ​ ( 88,484 ) Common stock activity under employee stock plans 416,614 ​ 417 ​ 15,375 ​ ​ ​ ​ ​ ​ 15,792 Stock-based compensation ​ ​ ​ ​ 6,419 ​ ​ ​ ​ ​ 6,419 Stock issued for acquisition ​ 1,363,259 ​ ​ 1,363 ​ ​ 75,579 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 76,942 Distribution of stock under deferred compensation arrangements ​ 22,497 ​ ​ ​ ​ ​ 415 ​ ​ ​ ​ ​ ​ ​ ​ 849 ​ ​ ( 1,264 ) ​ ​ 0 Treasury stock purchased ( 4,406 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 271 ) ​ 271 ​ 0 Treasury stock issued to benefit plan 1,240 ​ ​ ​ 38 ​ ​ ​ ​ 47 ​ ​ 85 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 ​ ​ ​ ​ ​ 189,694 ​ ​ ​ ​ 189,694 Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ( 112,704 ) ​ ​ ​ ( 112,704 ) Dividends declared: ​ ​ ​ ​ ​ ​ ​ Common, $ 1.70 per share ​ ​ ​ ​ ​ ( 91,591 ) ​ ​ ​ ​ ( 91,591 ) Common stock activity under employee stock plans 337,822 ​ 337 ​ 9,484 ​ ​ ​ ​ ​ ​ 9,821 Stock-based compensation ​ ​ ​ ​ 6,334 ​ ​ ​ ​ ​ 6,334 Distribution of stock under deferred compensation arrangements 18,089 ​ ​ ​ 323 ​ ​ ​ ​ 694 ​ ( 1,017 ) ​ 0 Treasury stock purchased ( 70,991 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 5,106 ) ​ 252 ​ ( 4,854 ) 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 ​ ​ ​ ​ ​ 188,081 ​ ​ ​ ​ 188,081 Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ( 635,812 ) ​ ​ ​ ( 635,812 ) Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 1.74 per share ​ ​ ​ ​ ​ ( 93,915 ) ​ ​ ​ ​ ( 93,915 ) Common stock activity under employee stock plans 97,779 ​ 98 ​ 1,086 ​ ​ ​ ​ ​ ​ 1,184 Stock-based compensation ​ ​ ​ ​ 7,738 ​ ​ ​ ​ ​ 7,738 Distribution of stock under deferred compensation arrangements 14,934 ​ ​ ​ 103 ​ ​ ​ ​ ​ 739 ​ ( 842 ) ​ 0 Treasury stock purchased ( 253,511 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 16,614 ) ​ 236 ​ ( 16,378 ) Balance at December 31, 2022 53,737,249 ​ $ 54,190 ​ $ 1,050,231 ​ $ 1,152,452 ​ $ ( 686,439 ) ​ $ ( 26,485 ) ​ $ 7,756 ​ $ 1,551,705 ​ See accompanying notes to consolidated financial statements. ​ 74 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Operating activities: ​ ​ ​ Net income $ 188,081 ​ $ 189,694 ​ $ 164,676 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation 14,411 ​ 15,592 ​ 15,963 Amortization of intangible assets 15,214 ​ 14,051 ​ 14,297 Net accretion on securities, loans and borrowings ( 18,738 ) ​ ( 22,501 ) ​ ( 11,353 ) Stock-based compensation 7,738 ​ 6,334 ​ 6,419 Provision for credit losses 14,773 ​ ( 8,839 ) ​ 14,212 Provision (benefit) for deferred income taxes 1,309 ​ 7,989 ​ ( 2,336 ) Amortization of mortgage servicing rights 801 ​ 519 ​ 379 Unrealized loss (gain) on equity securities 44 ​ ( 17 ) ​ 6 Gain on debt extinguishment 0 ​ 0 ​ ( 421 ) Income from bank-owned life insurance policies ( 2,147 ) ​ ( 2,012 ) ​ ( 1,915 ) Net gain on sale of assets ( 655 ) ​ ( 328 ) ​ ( 3,505 ) Change in other assets and liabilities ( 6,231 ) ​ 2,064 ​ ( 16,939 ) Net cash provided by operating activities 214,600 ​ 202,546 ​ 179,483 Investing activities: ​ ​ ​ Proceeds from maturities, calls and paydowns of available-for-sale investment securities 262,256 ​ 423,738 ​ 885,549 Proceeds from maturities and redemptions of equity and other securities 4,683 ​ 2,946 ​ 516 Purchases of available-for-sale investment securities ( 1,355,475 ) ​ ( 1,963,884 ) ​ ( 1,114,914 ) Purchases of equity and other securities ( 35,303 ) ​ ( 353 ) ​ ( 3,234 ) Net (increase) decrease in loans ( 1,003,741 ) ​ 49,929 ​ ( 185,131 ) Cash (paid) received for acquisition, net of cash acquired of $ 84,988 , $ 541 , and $ 55,973 , respectively ( 668 ) ​ ( 29,329 ) ​ 34,360 Proceeds from sales of premises and equipment, net ​ 2,432 ​ ​ 201 ​ ​ 389 Purchases of premises and equipment, net ( 12,922 ) ​ ( 13,377 ) ​ ( 14,784 ) Real estate limited partnership investments ​ ( 247 ) ​ ​ ( 646 ) ​ ​ ( 1,471 ) Net cash used in investing activities ( 2,138,985 ) ​ ( 1,530,775 ) ​ ( 398,720 ) Financing activities: ​ ​ ​ Net (decrease) increase in deposits ( 421,155 ) ​ 1,686,194 ​ 1,713,733 Net increase (decrease) in overnight borrowings ​ 768,400 ​ ​ 0 ​ ​ ( 8,300 ) Net increase in securities sold under agreement to repurchase, short-term ​ 21,932 ​ ​ 40,711 ​ ​ 42,300 Payments on other Federal Home Loan Bank borrowings ​ ( 95 ) ​ ​ ( 4,769 ) ​ ​ ( 3,092 ) Payments on subordinated debt held by unconsolidated subsidiary trusts 0 ​ ( 77,320 ) ​ ( 2,062 ) Payments on subordinated notes payable ​ 0 ​ ​ 0 ​ ​ ( 10,000 ) Proceeds from the issuance of common stock ​ 1,184 ​ ​ 9,821 ​ ​ 15,792 Purchases of treasury stock ( 16,614 ) ​ ( 5,106 ) ​ ( 271 ) Proceeds from the sale of treasury stock 0 ​ 0 ​ 85 Increase in deferred compensation agreements 236 ​ 252 ​ 271 Cash dividends paid ( 93,387 ) ​ ( 91,051 ) ​ ( 87,131 ) Withholding taxes paid on share-based compensation ( 1,284 ) ​ ( 1,244 ) ​ ( 1,313 ) Net cash provided by financing activities 259,217 ​ 1,557,488 ​ 1,660,012 Change in cash and cash equivalents ( 1,665,168 ) ​ 229,259 ​ 1,440,775 Cash and cash equivalents at beginning of year 1,875,064 ​ 1,645,805 ​ 205,030 Cash and cash equivalents at end of year $ 209,896 ​ $ 1,875,064 ​ $ 1,645,805 ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ Cash paid for interest $ 23,402 ​ $ 13,752 ​ $ 21,169 Cash paid for income taxes 57,131 ​ 41,531 ​ 39,578 Supplemental disclosures of noncash financing and investing activities: ​ ​ ​ Dividends declared and unpaid 23,762 ​ 23,235 ​ 22,695 Transfers from loans to other real estate 543 ​ 520 ​ 1,291 Transfers from premises and equipment, net to other assets ​ 5,795 ​ ​ 0 ​ ​ 0 Acquisitions: ​ ​ ​ ​ Common stock issued 0 ​ 0 ​ 76,942 Fair value of assets acquired, excluding acquired cash and intangibles 490,467 ​ 1,339 ​ 547,654 Fair value of liabilities assumed 543,452 ​ 1,164 ​ 529,177 ​ See accompanying notes to consolidated financial statements. 75 Table of Contents COMMUNITY BANK SYSTEM, INC. NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Community Bank System, Inc. (the “Company”) is a registered financial holding company which wholly-owns two significant consolidated subsidiaries: Community Bank, N.A. (the “Bank” or “CBNA”), and Benefit Plans Administrative Services, Inc. (“BPAS”). As of December 31, 2022, BPAS owns five subsidiaries: Benefit Plans Administrative Services, LLC (“BPA”), a provider of defined contribution plan administration services; Northeast Retirement Services, LLC (“NRS”), a provider of institutional transfer agency, master recordkeeping services, fund administration, trust and retirement plan services; BPAS Actuarial & Pension Services, LLC (“BPAS-APS”), a provider of actuarial and benefit consulting services; BPAS Trust Company of Puerto Rico, a Puerto Rican trust company; and Hand Benefits & Trust Company (“HB&T”), a provider of collective investment fund administration and institutional trust services. BPA owns one subsidiary, Fringe Benefits Design of Minnesota, Inc. (“FBD”), a provider of retirement plan administration and benefit consulting services. NRS owns one subsidiary, Global Trust Company, Inc. (“GTC”), a non-depository trust company which provides fiduciary services for collective investment trusts and other products. HB&T owns one subsidiary, Hand Securities Inc. (“HSI”), an introducing broker-dealer. As of December 31, 2022, the Bank operated 203 full-service branches and 13 drive-thru only locations operating as Community Bank, N.A. throughout 42 counties of Upstate New York, six counties of Northeastern Pennsylvania, 12 counties of Vermont and one county of Western Massachusetts, offering a range of commercial and retail banking services. The Bank owns the following operating subsidiaries: The Carta Group, Inc. (“Carta Group”), CBNA Preferred Funding Corporation (“PFC”), CBNA Treasury Management Corporation (“TMC”), Community Investment Services, Inc. (“CISI”), Nottingham Advisors, Inc. (“Nottingham”), OneGroup NY, Inc. (“OneGroup”), OneGroup Wealth Partners, Inc. (“Wealth Partners”), Oneida Preferred Funding II LLC (“OPFC II”) and E.S.B. Realty Corp. (“ESB Realty”). OneGroup is a full-service insurance agency offering personal and commercial lines of insurance and other risk management products and services. PFC, ESB Realty and OPFC II primarily act as investors in residential and commercial real estate activities. TMC provides cash management, investment, and treasury services to the Bank. CISI, Carta Group and Wealth Partners provide broker-dealer and investment advisory services. Nottingham provides asset management services to individuals, corporations, corporate pension and profit sharing plans, and foundations. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Variable Interest Entities (“VIE”) are legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entities to finance its activities without additional subordinated financial support. VIEs may be required to be consolidated by a company if it is determined the company is the primary beneficiary of a VIE. The primary beneficiary of a VIE is the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company’s VIEs are described in more detail in Note S to the consolidated financial statements. Critical Accounting Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting estimates include the allowance for credit losses, actuarial assumptions associated with the pension, post-retirement and other employee benefit plans, the provision for income taxes, investment valuation, the carrying value of goodwill and other intangible assets, the fair value of contingent consideration liabilities, and acquired loan valuations. 76 Table of Contents Risk and Uncertainties In the normal course of its business, the Company encounters economic and regulatory risks. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on a different basis, from its interest-earning assets. The Company’s primary credit risk is the risk of default on the Company’s loan portfolio that results from the borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects potential changes in the value of collateral underlying loans, the fair value of investment securities, and loans held for sale. The Company is subject to regulations of various governmental agencies. These regulations can change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required credit loss allowances, and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations. Revenue Recognition The Company recognizes revenue in accordance with ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope. Topic 606 is applicable to the Company’s noninterest revenue streams including its deposit related fees, electronic payment interchange fees, merchant income, trust, asset management and other wealth management revenues, insurance commissions and benefit plan services income. Noninterest revenue streams in-scope of Topic 606 are discussed below. Deposit Service Fees Deposit service fees consist of account activity fees, monthly service fees, overdraft fees, check orders, debit and credit card income, ATM fees, merchant services income and other revenues from processing wire transfers, bill pay service, cashier’s checks and foreign exchange. Debit and credit card income is primarily comprised of interchange fees earned at the time the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company’s performance obligation for deposit service fees is generally satisfied, and the related revenue recognized, when the services are rendered or the transaction has been completed. Payment for deposit service fees is typically received at the time it is assessed through a direct charge to customers’ accounts or on a monthly basis. Deposit service fees revenue primarily relates to the Company’s Banking operating segment. Other Banking Services Other banking services consists of other recurring revenue streams such as commissions from sales of credit life insurance, safe deposit box rental fees, mortgage banking income, bank owned life insurance income and other miscellaneous revenue streams. Commissions from the sale of credit life insurance are recognized at the time of sale of the policies. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Mortgage banking income and bank owned life insurance income are not within the scope of Topic 606. Other banking services revenue primarily relates to the Company’s Banking operating segment. 77 Table of Contents Employee Benefit Services Employee benefit services income consists of revenue received from retirement plan services, collective investment fund services, fund administration, transfer agency, consulting and actuarial services. The Company’s performance obligation that relates to plan services are satisfied over time and the resulting fees are recognized monthly or quarterly, based upon the market value of the assets under management and the applicable fee rate or on a time expended basis. Payment is generally received a few days after month end or quarter end. The Company does not earn performance-based incentives. Transactional services such as consulting services, mailings, or other ad hoc services are provided to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Employee benefit services revenue primarily relates to the Company’s Employee Benefit Services operating segment. Insurance Services Insurance services primarily consists of commissions received on insurance product sales and consulting services. The Company acts in the capacity of a broker or agent between the Company’s customer and the insurance carrier. The Company’s performance obligation related to insurance sales for both property and casualty insurance and employee benefit plans is generally satisfied upon the later of the issuance or effective date of the policy. The Company’s performance obligation related to consulting services is considered transactional in nature and is generally satisfied when the services have been completed and related revenue recognized at a point in time. Payment is received at the time services are rendered. The Company earns performance based incentives, commonly known as contingency payments, which usually are based on certain criteria established by the insurance carrier such as premium volume, growth and insured loss ratios. Contingent payments are accrued for based upon management’s expectations for the year. Commission expense associated with sales of insurance products is expensed as incurred. Insurance services revenue primarily relates to the Company’s All Other operating segment. Wealth Management Services Wealth management services income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company generally has two types of performance obligations related to these services. The Company’s performance obligation that relates to advisory and administration services are satisfied over time and the resulting fees are recognized monthly, based upon the market value of the assets under management and the applicable fee rate. Payment is generally received soon after month end or quarter end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Transactional services such as tax return preparation services, purchases and sales of investments and insurance products are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e. as incurred). Payment is generally received on a monthly basis. Wealth management services revenue primarily relates to the Company’s All Other operating segment. 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 December 31, 2022, $ 33.3 million of accounts receivable, including $ 8.8 million of unbilled fee revenue, and $ 1.1 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. Contract Acquisition Costs Under the guidance of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient method which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. 78 Table of Contents Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and highly liquid investments with original maturities of less than 90 days. The carrying amounts reported in the consolidated statements of condition for cash and cash equivalents approximate those assets’ fair values. As of December 31, 2022 and 2021, cash and cash equivalents reported in the consolidated statements of condition included cash due from banks of $ 10.0 million and $ 11.0 million, respectively. Cash due from banks may at times exceed federally insured limits. Investment Securities The Company can classify its investments in debt securities as held-to-maturity, available-for-sale, or trading. Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at cost, which is adjusted for amortization of premiums and accretion of discounts. Available-for-sale debt securities are reported at fair value with net unrealized gains and losses reflected as a separate component of shareholders’ equity, net of applicable income taxes. None of the Company’s investment securities have been classified as trading securities at December 31, 2022 or 2021. Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses are recorded on the trade date and determined using the specific identification method. Equity securities with a readily determinable fair value are reported at fair value with net unrealized gains and losses recognized in the consolidated statements of income. Certain equity securities that do not have a readily determinable fair value are stated at cost, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. These securities include restricted stock of the Federal Reserve Bank of New York (“Federal Reserve”) and the Federal Home Loan Bank of New York and the Federal Home Loan Bank of Boston (collectively referred to as “FHLB”), as well as other equity securities. Fair values for investment securities are based upon quoted market prices, where available. If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments, or a discounted cash flow model using market estimates of interest rates and volatility. Allowance for Credit Losses – Debt Securities For held-to-maturity debt securities, the Company measures expected credit losses on a collective basis by major security type. The estimates of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the security structure, recent security collateral performance metrics, if applicable, external credit ratings, failure of the issuer to make scheduled interest or principal payments, judgment about and expectations of future performance, and relevant independent industry research, analysis, and forecasts. This assessment involves a high degree of subjectivity and judgment that is based on the information available to management at a point in time. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected from the security is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses in the consolidated statements of income. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 19.3 million and $ 15.8 million at December 31, 2022 and 2021, respectively. Accrued interest receivable on held-to-maturity securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 4.7 million at December 31, 2022. These amounts are excluded from the estimate of credit losses. 79 Table of Contents Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, and deferred loan fees and costs. Mortgage loans held for sale are carried at fair value and are included in loans held for sale on the consolidated statements of condition. 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. The carrying amount of accrued interest approximates its fair value. Interest on loans is accrued and credited to operations based upon the principal amount outstanding. Nonrefundable loan fees and related direct costs are deferred and included in the loan balances where they are amortized over the life of the loan as an adjustment to loan yield using the effective yield method. Premiums and discounts on purchased loans are amortized using the effective yield method over the life of the loans. Accrued interest receivable on loans is included in accrued interest and fees receivable on the consolidated statements of condition and is excluded from the estimate of credit losses and amortized cost basis of loans. An allowance for credit losses is not measured for accrued interest receivable on loans as the Company writes off the uncollectible accrued interest balance in a timely manner upon recognition of credit deterioration of the underlying loan. The Company places a loan on nonaccrual status when the loan becomes 90 days past due (or sooner, if management concludes collection is doubtful), except when, in the opinion of management, it is well-collateralized and in the process of collection. A loan may be placed on nonaccrual status earlier than 90 days past due if there is deterioration in the financial position of the borrower or if other conditions of the loan so warrant. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed against interest income and the amortization of nonrefundable loan fees and related direct costs is discontinued. Interest income during the period the loan is on nonaccrual status is recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when management determines that the borrower’s performance has improved and that both principal and interest are collectible. This generally requires a sustained period of timely principal and interest payments and a well-documented credit evaluation of the borrower’s financial condition. ​ The Company’s charge-off policy by loan type is as follows: ● Business lending loans are generally charged-off to the extent outstanding principal exceeds the fair value of estimated proceeds from collection efforts, including liquidation of collateral. The charge-off is recognized when the loss becomes reasonably quantifiable. ● Consumer installment loans are generally charged-off to the extent outstanding principal exceeds the fair value of collateral, and are recognized by the end of the month in which the loan becomes 90 days past due. ● Consumer mortgage and home equity loans are generally charged-off to the extent outstanding principal exceeds the fair value of the property, less estimated costs to sell, and are recognized when the loan becomes 180 days past due. ​ Allowance for Credit Losses – Loans The allowance for credit losses is a valuation account that is netted against the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. 80 Table of Contents Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected future credit losses. Adjustments are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, acquired loans, delinquency level, risk ratings or term of loans as well as actual and forecasted macroeconomic trends, such as unemployment rates and changes in property values such as home prices, commercial real estate prices and automobile prices, gross domestic product, median household income net of inflation and other relevant factors in comparison to longer-term. Multiple economic scenarios are utilized to encompass a range of economic outcomes, including baseline, upside and downside forecasts, which are weighted in the calculation. The segments of the Company’s loan portfolio are disaggregated into the following classes that allow management to monitor risk and performance: ● Business lending is comprised of general purpose commercial and industrial loans including, but not limited to, agricultural-related and dealer floor plans, loans to not-for-profit enterprises, as well as mortgages on commercial property and Paycheck Protection Program (“PPP”) loans. The portfolio segment is further broken into portfolio classes based on risks associated with the collateral supporting the loans. Each class of business lending can also have different payment structures. Business lending loans are generally higher dollar loans and a large portion are risk rated at least annually. ● Consumer mortgages consist primarily of fixed rate residential instruments, typically 10 to 30 years in contractual term, secured by first liens on real property. FICO credit scores are used to monitor higher risks related to this type of lending with the Company segmenting consumer mortgages into “FICO AB” and “FICO CDE”. FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 as compared to FICO CDE with FICO scores less than 720 and potentially higher risk. ● Consumer indirect consists primarily of installment loans originated through selected dealerships and are generally secured by automobiles, marine and other recreational vehicles. Collateral securing the loans was used to further disaggregate this portfolio as charge-offs can vary depending on the purpose of the loan. Non-auto loans often have longer terms, and generally have higher risk due to declines in collateral value given the nature of the property. ● Consumer direct consists of all other loans to consumers such as personal installment loans and check credit lines of credit. ● Home equity products are installment loans or lines of credit most often secured by a first or second lien position on residential real estate with terms up to 30 years. 81 Table of Contents The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist, including collateral type, credit ratings/scores, size, duration, interest rate structure, industry, geography, origination vintage, and payment structure. The Company has identified the following portfolio segments and classes and measures the allowance for credit losses using the following methods: ​ ​ ​ ​ ​ ​ Loan Portfolio Segment Loan Portfolio Class Allowance for Credit Losses Methodology Business lending Commercial real estate multi family Cumulative loss rate Business lending Commercial real estate non-owner occupied Cumulative loss rate Business lending Commercial real estate owner occupied Cumulative loss rate Business lending Commercial and industrial loans Vintage loss rate Business lending Commercial and industrial lines of credit Line loss Business lending Municipal Cumulative loss rate Business lending Other business Cumulative loss rate Business lending Paycheck Protection Program Cumulative loss rate Consumer mortgage Consumer mortgage FICO AB Cumulative loss rate Consumer mortgage Consumer mortgage FICO CDE Cumulative loss rate Consumer indirect Indirect new auto Vintage loss rate Consumer indirect Indirect used auto Vintage loss rate Consumer indirect Indirect non-auto Vintage loss rate Consumer direct Consumer check credit Line loss Consumer direct Consumer direct Vintage loss rate Home equity Home equity fixed rate Vintage loss rate Home equity Home equity lines of credit Line loss ​ The cumulative loss rate method uses historical loss data applied against multiple pools of loans and uses a quantitatively based management overlay in order to capture the risk for a loan’s entire expected life. These loss rates are then applied to current balances to achieve a required reserve before qualitative adjustments. The line loss method calculates the quantitative required reserve for lines of credit. This method contains several different underlying calculations including average annual loss rate, pay-down rate, cumulative loss, average draw percentage, and undrawn liability reserve. The vintage loss rate method calculates annual loss rates by origination year. The results of this model are then applied to current outstanding balances by vintage, which correspond to the origination period for each annual loss rate. In addition to the risk characteristics noted above, management considers the portion of acquired loans to the overall segment balance, as well as current delinquency and charge-off trends compared to historical time periods. Loans that do not share risk characteristics are evaluated on an individual basis. Loans that are individually assessed are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Expected credit losses are estimated over the contractual term of the loans and adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. 82 Table of Contents Certain business lending, consumer direct, and home equity loans do not have stated maturities. In determining the estimated life of these loans, management first estimates the future cash flows expected to be received and then applies those expected future cash flows to the balance. Expected credit losses for lines of credit with no stated maturity are determined by estimating the amount and timing of all principal payments expected to be received after the reporting period and allocating those principal payments between the balance outstanding as of the reporting period and the balance of future receivables expected to be originated through subsequent usage of the unconditionally cancellable loan commitment associated with the account until the expected payments have been fully allocated. An additional allowance for credit loss is recorded for the excess of the balance outstanding as of the reporting period over the expected principal payments allocated to that balance. Troubled Debt Restructuring A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a troubled debt restructuring (“TDR”). The allowance for credit loss on a TDR is measured using the same method as all other loans, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan. Allowance for Credit Losses - Off-balance-sheet credit exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. There are unfunded commitments for lines of credit within each of the Company’s loan portfolio segments except consumer indirect. The allowance for credit losses on off-balance-sheet credit exposures is adjusted as a provision for (or reversal of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics that are the same as the adjustments considered for the loan portfolio. Purchased Credit Deteriorated (“PCD”) Loans The Company has purchased loans, some of which have experienced a more-than-insignificant credit deterioration since origination. The Company’s policy for reviewing what meets the threshold of the definition of a more-than-insignificant credit deterioration includes loans that are delinquent more than 30 days, loans that have historical delinquencies of more than 30 days at least three times since origination, risk rating downgrades since origination, loans with multiple payment deferrals, loans considered to be troubled debt restructurings, individually assessed loans or loans with certain documented policy exceptions, further refined based on loan-specific facts and circumstances. PCD loans are initially recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded as provision for (or reversal of) credit losses. Non-Purchased Credit Deteriorated (“non-PCD”) Loans Acquired loans that are not deemed to have experienced a more-than-insignificant credit deterioration since origination are considered non-PCD. At the acquisition date, a fair value adjustment is recorded that includes both credit and interest rate considerations. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life. Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method. A provision for credit losses is also recorded at acquisition for the credit considerations on non-PCD loans. Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans are the same as originated loans and subsequent changes to the allowance for credit losses are recorded as provision for (or reversal of) credit losses. 83 Table of Contents Intangible Assets Intangible assets include core deposit intangibles, customer relationship intangibles and goodwill arising from acquisitions. Core deposit intangibles and customer relationship intangibles are amortized on either an accelerated or straight-line basis over periods ranging from seven to 20 years . The initial and ongoing carrying value of goodwill and other intangible assets is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators. The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value. The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Computer software costs that are capitalized include only external direct costs of obtaining and installing the software. The Company has not developed any internal use software. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Useful lives range from two to 20 years for equipment; three to seven years for software and hardware ; and 10 to 40 years for building and building improvements. Land improvements are depreciated over 20 years and leasehold improvements are amortized over the shorter of the term of the respective lease plus any optional renewal periods that are reasonably assured or life of the asset. Maintenance and repairs are charged to expense as incurred. Premises and equipment designated as held for sale is included in other assets on the consolidated statements of condition and are carried at the lower of cost or fair value, less estimated costs to sell. Leases The Company occupies certain offices and uses certain equipment under non-cancelable operating lease agreements. The Company determines if an arrangement is a lease at inception. The right-of-use assets associated with operating leases are recorded in premises and equipment in the Company’s consolidated statements of condition. The lease liabilities associated with operating leases are included in accrued interest and other liabilities in the Company’s consolidated statements of condition. Right-of-use assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the associated leases. Operating lease right-of-use assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company uses interest rates on advances from the FHLB available at the time of commencement to determine the present value of lease payments. The operating lease right-of-use assets include any lease payments made at the time of commencement and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term and is included in occupancy and equipment expense in the Company’s consolidated statements of income. The Company elected to account for lease and non-lease components separately, applies a portfolio approach to account for the lease right-of-use assets and liabilities for certain equipment leases and elected to exclude leases with a term of 12 months or less from the recognition and measurement policies described above. Other Real Estate Other real estate owned is comprised of properties acquired through foreclosure, or by deed in lieu of foreclosure. These assets are carried at fair value less estimated costs of disposal. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Any subsequent reduction in value is recognized by a charge to income. Operating costs associated with the properties are charged to expense as incurred. At December 31, 2022 and 2021, other real estate totaled $ 0.5 million and $ 0.7 million, respectively, and is included in other assets in the Company’s consolidated statements of condition. 84 Table of Contents Mortgage Servicing Rights 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 period of estimated net servicing income or loss. The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. In using this valuation method, the Company incorporates assumptions that market participants would use in estimating future net servicing income, which includes estimates of the servicing cost per loan, the discount rate, and prepayment speeds. The carrying value of the originated mortgage servicing rights is included in other assets and is evaluated quarterly for impairment using these same market assumptions. The amount of impairment recognized is the amount by which the carrying value of the capitalized servicing rights for a stratum exceeds estimated fair value. Impairment is recognized through a valuation allowance. Treasury Stock Repurchases of shares of the Company’s common stock are recorded at cost as a reduction of shareholders’ equity. Reissuance of shares of treasury stock is recorded at average cost. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. Provision for income taxes is based on taxes currently payable or refundable as well as deferred taxes that are based on temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are reported in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority having full knowledge of all relevant information. A tax position meeting the more-likely-than-not recognition threshold should be measured at the largest amount of benefit for which the likelihood of realization upon ultimate settlement exceeds 50 percent. Should tax laws change or the taxing authorities determine that management’s assumptions were inappropriate, an adjustment may be required which could have a material effect on the Company’s results of operations. Investments in Real Estate Limited Partnerships The Company has investments in various real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing. The Company’s ownership interest in these limited partnerships ranges from 5.00 % to 99.99 % as of December 31, 2022. These investments are made directly in Low Income Housing Tax Credit (“LIHTC”) partnerships formed by third parties. As a limited partner in these operating partnerships, the Company receives tax credits and tax deductions for losses incurred by the underlying properties. The Company accounts for its ownership interest in LIHTC partnerships in accordance with Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects . The standard permits an entity to amortize the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. The Company has no unfunded commitments at December 31, 2022 related to qualified affordable housing project investments. There were no impairment losses during the year resulting from the forfeiture or ineligibility of tax credits related to qualified affordable housing project investments. Repurchase Agreements The Company sells certain securities under agreements to repurchase. These agreements are treated as collateralized financing transactions. These secured borrowings are reflected as liabilities in the accompanying consolidated statements of condition and are recorded at the amount of cash received in connection with the transaction. Short-term securities sold under agreements to repurchase generally mature within one day from the transaction date. Securities, generally U.S. government and agency securities, pledged as collateral under these financing arrangements can be repledged by the secured party. Additional collateral may be required based on the fair value of the underlying securities. 85 Table of Contents Retirement Benefits The Company provides defined benefit pension benefits to eligible employees and post-retirement health and life insurance benefits to certain eligible retirees. The Company also provides deferred compensation and supplemental executive retirement plans for selected current and former employees, officers, and directors. Expense under these plans is charged to current operations and consists of several components of net periodic benefit cost based on various actuarial assumptions regarding future experience under the plans, including discount rate, rate of future compensation increases and expected return on plan assets. Assets Under Management or Administration Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition as they are not assets of the Company. All fees associated with providing asset management services are recorded on an accrual basis of accounting and are included in noninterest income. Advertising Advertising costs, which are nondirect response in nature and expensed as incurred, totaled approximately $ 8.2 million, $ 5.2 million and $ 6.1 million for the years ending December 31, 2022, 2021 and 2020, respectively. Bank Owned Life Insurance The Company owns life insurance policies on certain current and former employees and directors where the Bank is the beneficiary. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value (“CSV”) adjusted for other charges or other amounts due that are probable at settlement. Increases in the CSV of the policies, as well as the death benefits received, net of any CSV, are recorded in noninterest income, and are not subject to income taxes. Earnings Per Share Using the two-class method, basic earnings per common share is computed based upon net income available to common shareholders divided by the weighted average number of common shares outstanding during each period, which excludes the outstanding unvested restricted stock. Diluted earnings per share is computed using the weighted average number of common shares determined for the basic earnings per common share computation plus the dilutive effect of stock options using the treasury stock method. Stock options where the exercise price is greater than the average market price of common shares were not included in the computation of earnings per diluted share as they would have been anti-dilutive. Shares held in rabbi trusts related to deferred compensation plans are considered outstanding for purposes of computing earnings per share. Stock-based Compensation Companies are required to measure and record compensation expense for stock options and other share-based payments on the instruments’ fair value on the date of grant. Stock-based compensation expense is recognized ratably over the requisite service period for all awards (see Note L). Fair Values of Financial Instruments The Company determines fair values based on quoted market values where available or on estimates using present values or other valuation techniques. Those techniques are significantly affected by the assumptions used, including 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, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from this disclosure requirement. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The fair values of investment securities, loans, deposits, and borrowings have been disclosed in Note R. 86 Table of Contents Contingent Consideration The Company measures contingent consideration liabilities recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy as defined in ASC 820 Fair Value Measurement . The Company used a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration on the acquisition date. At each subsequent reporting period, the fair value is re-measured with the change in fair value recognized in noninterest expenses in the consolidated statements of income. Amounts, if any, paid to the seller in excess of the amount recorded on the acquisition date will be classified as cash flows used in operating activities. Payments to the seller not exceeding the acquisition-date fair value of the contingent consideration will be classified as cash flows used in financing activities. Reclassifications Certain reclassifications have been made to prior years’ balances to conform to the current year presentation. 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. The FASB issued ASU 2022-06 in December 2022, which deferred the expiration date of ASC 848 from December 31, 2022 to December 31, 2024, which allows more transition time after the intended cessation of LIBOR on June 30, 2023. 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 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 assess 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 were effective upon addition to the FASB Codification in 2022 and the Company determined that this guidance does not have a material impact on the Company’s consolidated financial statements. New Accounting Pronouncements 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. The Company adopted the standard on January 1, 2023. ​ 87 Table of Contents NOTE B: ACQUISITIONS On November 1, 2022, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets of JMD Associates, LLC (“JMD”), an insurance agency headquartered in Boca Raton, Florida. The Company paid $ 1.0 million in cash and recorded a $ 0.1 million intangible asset for a noncompete agreement, a $ 0.4 million customer list intangible and $ 0.5 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 $ 0.1 million and direct expenses of approximately $ 0.1 million were included in the consolidated statements of income for the year ended December 31, 2022. On May 13, 2022, the Company completed its 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 $ 583.4 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. Goodwill of $ 42.2 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 $ 12.1 million and direct expenses of approximately $ 3.1 million from the Elmira branch network, which may not include certain shared expenses, were included in the consolidated statements of income for the year ended December 31, 2022. The Company incurred certain transaction-related costs in 2022 in connection with the Elmira acquisition. On January 1, 2022, the Company, through its subsidiary 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 $ 0.9 million and direct expenses of approximately $ 0.4 million were included in the consolidated statements of income for the year ended December 31, 2022. 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 $ 3.1 million and $ 0.6 million and direct expenses of approximately $ 1.8 million and $ 0.6 million from TGA were included in the consolidated income statements for the years ended December 31, 2022 and 2021, 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 % to present value the payments and (2) probability adjusted level of retained revenue between $ 2.3 million and $ 3.8 million. The contingent consideration related to the TGA acquisition was revalued at December 31, 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 5.87 % to 6.21 % applied to present value the payments and (2) probability adjusted level of retained revenue between $ 3.1 million and $ 3.2 million. A revaluation was previously performed at June 30, 2022, resulting in a $ 0.5 million adjustment to the fair value of the contingent consideration. Based on the results of the December revaluation, the Company recorded a reduction of $ 0.3 million acquisition-related contingent consideration adjustment as of December 31, 2022 in the consolidated statements of income related to the TGA acquisition. The total net adjustment for 2022 was $ 0.2 million, for an adjusted fair value of $ 1.7 million at December 31, 2022. 88 Table of Contents On July 1, 2021, the Company, through its subsidiary BPA, completed its acquisition of 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 $ 3.5 million and $ 2.8 million and direct expenses of approximately $ 4.1 million and $ 2.5 million from FBD were included in the consolidated income statements for the years ended December 31, 2022 and 2021, 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 % 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 December 31, 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 6.09 % applied to present value the payment, and (2) probability adjusted level of retained revenue between $ 4.9 million and $ 5.1 million. A revaluation was previously performed at June 30, 2022, resulting in a $ 0.1 million adjustment to the fair value of the contingent consideration. Based on the results of the December revaluation, the Company recorded an additional $ 0.4 million acquisition-related contingent consideration adjustment in the consolidated statements of income related to the FBD acquisition. The total adjustment for 2022 was $ 0.5 million, for an adjusted fair value of $ 1.1 million at December 31, 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 $ 1.3 million and $ 0.7 million and direct expenses of approximately $ 1.3 million and $ 0.6 million from NuVantage were included in the consolidated income statements for the years ended December 31, 2022 and 2021, respectively. On June 12, 2020, the Company completed its merger with Steuben Trust Corporation (“Steuben”), parent company of Steuben Trust Company, a New York State chartered bank headquartered in Hornell, New York, for $ 98.6 million in Company stock and cash, comprised of $ 21.6 million in cash and the issuance of 1.36 million shares of common stock. The merger extended the Company’s footprint into two new counties in Western New York State, and enhanced the Company’s presence in four Western New York State counties in which it currently operates. In connection with the merger, the Company added 11 full-service offices to its branch service network and acquired $ 607.8 million of assets, including $ 339.7 million of loans and $ 180.5 million of investment securities, as well as $ 516.3 million of deposits. Goodwill of $ 20.0 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. Revenues, excluding interest income on acquired investments, interest income on acquired consumer indirect loans, and revenues associated with acquired loans and deposits consolidated into the legacy branch network, of approximately $ 11.4 million, $ 13.1 million and $ 7.7 million and direct expenses, which may not include certain shared expenses, of approximately $ 4.8 million, $ 5.1 million and $ 2.6 million from Steuben were included in the consolidated income statements for the years ended December 31, 2022, 2021 and 2020, respectively. The Company incurred certain transaction-related costs in connection with the Steuben acquisition. 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. During 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. During the fourth quarter of 2022, the carrying amount of loans, other assets and other liabilities related to the Elmira acquisition were adjusted upon receipt of new information as a result of adjustments to loan escrow balances, deferred income taxes and benefits accruals. The adjustments resulted in a net decrease to goodwill of $ 3.6 million. 89 Table of Contents The above referenced acquisitions generally expanded the Company’s geographical 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. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed after considering the measurement period adjustments described above: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 (000s omitted) Elmira Other (1) Total ​ ​ Total (2) Steuben Consideration: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash $ 82,179 ​ $ 3,477 ​ $ 85,656 ​ $ 29,870 ​ $ 21,613 Community Bank System, Inc. common stock 0 ​ 0 ​ 0 ​ ​ 0 ​ 76,942 Contingent consideration ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 2,900 ​ ​ 0 Total net consideration 82,179 ​ 3,477 ​ 85,656 ​ ​ 32,770 ​ 98,555 Recognized amounts of identifiable assets acquired and liabilities assumed: ​ ​ ​ ​ ​ ​ Cash and cash equivalents 84,988 ​ 0 ​ 84,988 ​ ​ 541 ​ 55,973 Investment securities 11,305 ​ 0 ​ 11,305 ​ ​ 0 ​ 180,497 Loans, net of allowance for credit losses on PCD loans 436,954 ​ 0 ​ 436,954 ​ ​ 0 ​ 339,017 Premises and equipment, net 11,303 ​ 14 ​ 11,317 ​ ​ 760 ​ 7,764 Accrued interest and fees receivable 884 ​ 0 ​ 884 ​ ​ 0 ​ 2,701 Other assets 30,007 ​ 0 ​ 30,007 ​ ​ 579 ​ 17,675 Core deposit intangibles 7,970 ​ 0 ​ 7,970 ​ ​ 0 ​ 2,928 Other intangibles 0 ​ 3,014 ​ 3,014 ​ ​ 26,337 ​ 1,196 Deposits ( 522,295 ) ​ 0 ​ ( 522,295 ) ​ ​ 0 ​ ( 516,274 ) Other liabilities ( 3,541 ) ​ 0 ​ ( 3,541 ) ​ ​ ( 1,164 ) ​ ( 4,841 ) Other Federal Home Loan Bank borrowings ( 17,616 ) ​ 0 ​ ( 17,616 ) ​ ​ 0 ​ ( 6,000 ) Subordinated debt held by unconsolidated subsidiary trusts 0 ​ 0 ​ 0 ​ ​ 0 ​ ( 2,062 ) Total identifiable assets, net 39,959 ​ 3,028 ​ 42,987 ​ ​ 27,053 ​ 78,574 Goodwill $ 42,220 ​ $ 449 ​ $ 42,669 ​ $ 5,717 ​ $ 19,981 ​ (1) Includes amounts for all OneGroup acquisitions completed in 2022. (2) Includes amounts for TGA, FBD, and NuVantage acquisitions completed in 2021. The Company acquired loans from Elmira for which there was not evidence of a more-than-insignificant deterioration in credit quality since origination (non-PCD loans) with an unpaid principal balance of $ 455.7 million at the acquisition date. Total fair value adjustments for non-PCD loans resulted in a net discount of $ 20.8 million. The Company acquired loans from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination (PCD loans as described in Note A: Summary of Significant Accounting Policies). 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 Company acquired non-PCD loans from Steuben with an unpaid principal balance of $ 313.0 million at the acquisition date. Total fair value adjustments for non-PCD loans resulted in a net premium of $ 2.5 million. ​ 90 Table of Contents The Company has acquired loans from Steuben classified as PCD loans. There were no investment securities acquired from Steuben 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 ​ $ 35,906 Allowance for credit losses at acquisition ​ ​ ( 668 ) Non-credit premium at acquisition ​ ​ 103 Fair value of PCD loans at acquisition ​ $ 35,341 ​ The fair value of the Company’s common stock issued for the Steuben acquisition was determined using the market close price of the stock on June 12, 2020. ​ 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 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 and Steuben acquisitions and other intangibles related to the NuVantage acquisition and three of the OneGroup acquisitions completed in 2022 are being amortized using an accelerated method over an estimated useful life of eight years . The other intangibles associated with the fourth remaining OneGroup acquisition completed in 2022 are being amortized using an accelerated method over their estimated useful life of ten years . 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. The goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira and Steuben acquisitions, the All Other segment for the NuVantage, TGA and JMD acquisitions, and the Employee Benefit Services segment for the FBD acquisition. Goodwill arising from the Elmira, FBD and Steuben acquisitions is not deductible for tax purposes. Goodwill arising from the JMD, 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 amount to $ 5.0 million, $ 0.7 million and $ 4.9 million during 2022, 2021 and 2020, respectively, and have been separately stated in the consolidated statements of income. Supplemental Pro Forma Financial Information (Unaudited) The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the years ended December 31, 2022 and 2021, and the Steuben acquisition had been completed as of January 1, 2019 for the year ended December 31, 2020. The pro forma information does not include amounts related to the OneGroup acquisitions completed in 2022 or the NuVantage, FBD, and TGA acquisitions completed in 2021 as the amounts were immaterial. 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 acquisitions 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 acquisitions. 91 Table of Contents The pro forma information set forth below reflects the historical results of Elmira and Steuben combined with the Company’s consolidated statements of income with adjustments related to (a) certain purchase accounting fair value adjustments and (b) amortization of customer lists and core deposit intangibles. Acquisition expenses related to the Elmira transaction totaling $ 5.0 million for the year ended December 31, 2022 were included in the pro forma information as if they were incurred in 2021. Acquisition expenses related to the Steuben transaction totaling $ 4.8 million for the year ended December 31, 2020 were adjusted in the pro forma information as if they were incurred in 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pro Forma (Unaudited) ​ ​ Year Ended December 31, (000s omitted) 2022 2021 2020 Total revenue, net of interest expense ​ $ 687,976 ​ $ 646,375 ​ $ 607,382 Net income ​ 193,417 ​ 191,450 ​ 171,147 ​ ​ ​ NOTE C: INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities as of December 31 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Estimated ​ Amortized ​ Unrealized ​ Unrealized ​ Estimated (000’s omitted) Cost Gains Losses Fair Value Cost Gains Losses Fair Value Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 3,660,546 ​ $ 0 ​ $ 417,009 ​ $ 3,243,537 ​ $ 4,064,624 ​ $ 39,997 ​ $ 106,057 ​ $ 3,998,564 Obligations of state and political subdivisions ​ ​ 549,118 ​ ​ 506 ​ ​ 45,327 ​ ​ 504,297 ​ ​ 413,019 ​ ​ 17,326 ​ ​ 56 ​ ​ 430,289 Government agency mortgage-backed securities ​ ​ 444,689 ​ ​ 58 ​ ​ 60,114 ​ ​ 384,633 ​ ​ 474,506 ​ ​ 7,615 ​ ​ 5,065 ​ ​ 477,056 Corporate debt securities ​ ​ 8,000 ​ ​ 0 ​ ​ 886 ​ ​ 7,114 ​ ​ 8,000 ​ ​ 39 ​ ​ 77 ​ ​ 7,962 Government agency collateralized mortgage obligations ​ ​ 13,121 ​ ​ 1 ​ ​ 852 ​ ​ 12,270 ​ ​ 19,953 ​ ​ 410 ​ ​ 24 ​ ​ 20,339 Total available-for-sale portfolio ​ $ 4,675,474 ​ $ 565 ​ $ 524,188 ​ $ 4,151,851 ​ $ 4,980,102 ​ $ 65,387 ​ $ 111,279 ​ $ 4,934,210 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity and other Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value ​ $ 251 ​ $ 168 ​ $ 0 ​ $ 419 ​ $ 251 ​ $ 212 ​ $ 0 ​ $ 463 Federal Home Loan Bank common stock ​ 47,497 ​ 0 ​ 0 ​ 47,497 ​ 7,188 ​ 0 ​ 0 ​ 7,188 Federal Reserve Bank common stock ​ 31,144 ​ 0 ​ 0 ​ 31,144 ​ 33,916 ​ 0 ​ 0 ​ 33,916 Other equity securities, at adjusted cost ​ 3,532 ​ 750 ​ 0 ​ 4,282 ​ 2,562 ​ 750 ​ 0 ​ 3,312 Total equity and other securities ​ $ 82,424 ​ $ 918 ​ $ 0 ​ $ 83,342 ​ $ 43,917 ​ $ 962 ​ $ 0 ​ $ 44,879 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 1,079,695 ​ $ 0 ​ $ 44,900 ​ $ 1,034,795 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 Total held-to-maturity portfolio ​ $ 1,079,695 ​ $ 0 ​ $ 44,900 ​ $ 1,034,795 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ In the fourth quarter of 2022, the Company transferred $ 1.08 billion of U.S. Treasury securities, at fair value, from available-for-sale to held-to-maturity. The securities were reclassified at fair value at the time of the transfer and the transfer represented a non-cash transaction. Accumulated other comprehensive loss at December 31, 2022 included pretax unrealized losses of $ 341.2 million related to the transfer. These unrealized losses will be amortized, consistent with the amortization of the discount on these securities, over the remaining life as an adjustment of yield, resulting in no impact to net interest income or net income. 92 Table of Contents A summary of investment securities that have been in a continuous unrealized loss position for less than or greater than twelve months is as follows: As of December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 Months 12 Months or Longer Total ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ ​ Unrealized (000’s omitted) # Fair Value Losses # Fair Value Losses # Fair Value Losses Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 41 ​ $ 1,384,075 ​ $ 132,511 ​ 61 ​ $ 1,859,462 ​ $ 284,498 ​ 102 ​ $ 3,243,537 ​ $ 417,009 Obligations of state and political subdivisions ​ 582 ​ 370,524 ​ 35,488 ​ 76 ​ 47,923 ​ 9,839 ​ 658 ​ 418,447 ​ 45,327 Government agency mortgage-backed securities ​ 497 ​ 190,727 ​ 19,508 ​ 274 ​ 189,919 ​ 40,606 ​ 771 ​ 380,646 ​ 60,114 Corporate debt securities ​ 0 ​ ​ 0 ​ ​ 0 ​ 2 ​ ​ 7,114 ​ ​ 886 ​ 2 ​ ​ 7,114 ​ ​ 886 Government agency collateralized mortgage obligations ​ 29 ​ 9,968 ​ 600 ​ 17 ​ 2,274 ​ 252 ​ 46 ​ 12,242 ​ 852 Total available-for-sale investment portfolio ​ 1,149 ​ $ 1,955,294 ​ $ 188,107 ​ 430 ​ $ 2,106,692 ​ $ 336,081 ​ 1,579 ​ $ 4,061,986 ​ $ 524,188 Held-to-Maturity Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S Treasury and agency securities 23 ​ $ 1,034,795 ​ $ 44,900 0 ​ $ 0 ​ $ 0 23 ​ $ 1,034,795 ​ $ 44,900 Total held-to-maturity portfolio 23 ​ $ 1,034,795 ​ $ 44,900 0 ​ $ 0 ​ $ 0 23 ​ $ 1,034,795 ​ $ 44,900 ​ As of December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 Months 12 Months or Longer Total ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ ​ Unrealized (000’s omitted) # Fair Value Losses # Fair Value Losses # Fair 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 available-for-sale 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. Additionally, a portion of the obligations of state and political subdivisions carry a secondary level of credit enhancement. The Company holds two corporate debt securities in an unrealized loss position and based on an analysis done by the Company the issuers of the securities show a low risk of default. 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 December 31, 2022 and 2021 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 portfolio as of December 31, 2022 and 2021. Securities classified as held-to-maturity are included under the CECL methodology. Calculation of expected credit loss under CECL is done on a collective (“pooled”) basis, with assets grouped when similar risk characteristics exist. The Company notes that at December 31, 2022 all securities in the held-to-maturity classification are U.S. Treasury securities; therefore, they share the same risk characteristics and can be evaluated on a collective basis. The expected credit loss on these securities is evaluated based on historical credit losses of this security type and the expected possibility of default in the future. U.S. Treasury securities often receive the highest credit rating by rating agencies and the Company has concluded that the possibility of default is considered remote. The U.S. Treasury securities held by the Company in the held-to-maturity category carry an AA+ rating from Standard & Poor’s, Aaa from Moody’s Investor Services, and AAA from Fitch. The Company concludes that the long history with no credit losses for U.S. Treasury securities (adjusted for current conditions and reasonable and supportable forecasts) indicates an expectation that nonpayment of the amortized cost basis is zero. Management has concluded that there is no prepayment risk and it is expected to recover the recorded investment. Accordingly, there is no allowance for credit losses on the Company’s held-to-maturity portfolio as of December 31, 2022 and 2021. 93 Table of Contents The amortized cost and estimated fair value of debt securities at December 31, 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 are shown separately. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity Available-for-Sale (000’s omitted) ​ Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less ​ $ 0 ​ $ 0 ​ $ 521,444 ​ $ 516,496 Due after one through five years ​ ​ 0 ​ ​ 0 ​ 1,728,988 ​ 1,574,685 Due after five years through ten years ​ ​ 539,825 ​ ​ 524,815 ​ 1,161,641 ​ 1,020,562 Due after ten years ​ ​ 539,870 ​ ​ 509,980 ​ 805,591 ​ 643,205 Subtotal ​ ​ 1,079,695 ​ ​ 1,034,795 ​ 4,217,664 ​ 3,754,948 Government agency mortgage-backed securities ​ ​ 0 ​ ​ 0 ​ 444,689 ​ 384,633 Government agency collateralized mortgage obligations ​ ​ 0 ​ ​ 0 ​ 13,121 ​ 12,270 Total ​ $ 1,079,695 ​ $ 1,034,795 ​ $ 4,675,474 ​ $ 4,151,851 ​ Investment securities with a carrying value of $ 2.18 billion and $ 2.32 billion at December 31, 2022 and 2021, respectively, were pledged to collateralize certain deposits and borrowings. Securities pledged to collateralize certain deposits and borrowings included $ 466.9 million and $ 485.4 million of U.S. Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at December 31, 2022 and 2021, respectively. All securities sold under agreement to repurchase as of December 31, 2022 and 2021 have an overnight and continuous maturity. NOTE D: LOANS AND ALLOWANCE FOR CREDIT LOSSES The segments of the Company’s loan portfolio at December 31 are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) ​ 2022 2021 Business lending ​ $ 3,645,665 ​ $ 3,075,904 Consumer mortgage ​ 3,012,475 ​ 2,556,114 Consumer indirect ​ 1,539,653 ​ 1,189,749 Consumer direct ​ 177,605 ​ 153,811 Home equity ​ 433,996 ​ 398,061 Gross loans, including deferred origination costs ​ 8,809,394 ​ 7,373,639 Allowance for credit losses ​ ( 61,059 ) ​ ( 49,869 ) Loans, net of allowance for credit losses ​ $ 8,748,335 ​ $ 7,323,770 ​ The Company had approximately $ 73.8 million and $ 34.9 million of net deferred loan origination costs included in gross loans as of December 31, 2022 and 2021, respectively. Certain directors and executive officers of the Company, as well as associates of such persons, are loan customers. Loans to these individuals were made in the ordinary course of business under normal credit terms and do not have more than a normal risk of collection. Following is a summary of the aggregate amount of such loans during 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Balance at beginning of year ​ $ 13,773 ​ $ 15,549 New loans ​ 2,025 ​ 2,500 Payments ​ ( 3,425 ) ​ ( 4,276 ) Balance at end of year ​ $ 12,373 ​ $ 13,773 ​ 94 Table of Contents The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) ​ 30 – 89 ​ Due and ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ December 31, 2022 Days Still Accruing Nonaccrual Past Due Current Total Loans Business lending ​ $ 9,818 ​ $ 0 ​ $ 4,689 ​ $ 14,507 ​ $ 3,631,158 ​ $ 3,645,665 Consumer mortgage ​ 13,757 ​ 3,510 ​ 22,583 ​ 39,850 ​ 2,972,625 ​ 3,012,475 Consumer indirect ​ 16,767 ​ 178 ​ 0 ​ 16,945 ​ 1,522,708 ​ 1,539,653 Consumer direct ​ 1,307 ​ 132 ​ 28 ​ 1,467 ​ 176,138 ​ 177,605 Home equity ​ 3,595 ​ 299 ​ 1,945 ​ 5,839 ​ 428,157 ​ 433,996 Total ​ $ 45,244 ​ $ 4,119 ​ $ 29,245 ​ $ 78,608 ​ $ 8,730,786 ​ $ 8,809,394 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) ​ 30 – 89 ​ Due and ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ December 31, 2021 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 years ended December 31, 2022 or 2021. For the years ended December 31, 2022 and 2021, an immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income. Approximately $ 1.9 million of interest income on loans that returned to accrual status in 2022 was recognized for the year ended December 31, 2022. 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 and the loan has potential weaknesses, 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 loan has a well-defined weakness or weaknesses. 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. ​ 95 Table of Contents The following tables show the amount of business lending loans by credit quality category at December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Converted to ​ ​ ​ December 31, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Term Total Business lending: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Risk rating ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 747,570 ​ $ 373,914 ​ $ 232,591 ​ $ 246,817 ​ $ 168,423 ​ $ 604,746 ​ $ 711,629 ​ $ 336,722 ​ $ 3,422,412 Special mention ​ 2,787 ​ 4,836 ​ 3,781 ​ 3,676 ​ 14,593 ​ 45,627 ​ 29,403 ​ 29,975 ​ 134,678 Classified ​ 1,800 ​ 775 ​ 1,138 ​ 3,196 ​ 12,235 ​ 38,138 ​ 10,587 ​ 20,706 ​ 88,575 Doubtful ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Total business lending ​ $ 752,157 ​ $ 379,525 ​ $ 237,510 ​ $ 253,689 ​ $ 195,251 ​ $ 688,511 ​ $ 751,619 ​ $ 387,403 ​ $ 3,645,665 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Converted to ​ ​ ​ December 31, 2021 2021 2020 2019 2018 2017 Prior Cost Basis ​ Term Total Business lending: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Risk rating ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 517,302 ​ $ 286,386 ​ $ 265,551 ​ $ 204,376 ​ $ 152,440 ​ $ 544,577 ​ $ 460,461 ​ $ 286,446 ​ $ 2,717,539 Special mention ​ 5,969 ​ 10,638 ​ 9,738 ​ 18,702 ​ 7,972 ​ 54,367 ​ 26,609 ​ ​ 46,518 ​ 180,513 Classified ​ 1,870 ​ 1,414 ​ 3,571 ​ 16,729 ​ 18,982 ​ 56,538 ​ 26,780 ​ ​ 51,403 ​ 177,287 Doubtful ​ 0 ​ 0 ​ 0 ​ 62 ​ 0 ​ 0 ​ 503 ​ ​ 0 ​ 565 Total business lending ​ $ 525,141 ​ $ 298,438 ​ $ 278,860 ​ $ 239,869 ​ $ 179,394 ​ $ 655,482 ​ $ 514,353 ​ $ 384,367 ​ $ 3,075,904 ​ 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. 96 Table of Contents The following table details the balances in all other loan categories at December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Converted to ​ ​ ​ December 31, 2022 2022 2021 2020 2019 2018 Prior Cost Basis Term Total Consumer mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO AB (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 379,171 ​ $ 492,731 ​ $ 217,889 ​ $ 173,942 ​ $ 100,161 ​ $ 604,258 ​ $ 954 ​ $ 58,639 ​ $ 2,027,745 Nonperforming ​ 0 ​ 75 ​ 573 ​ 184 ​ 399 ​ 4,347 ​ 0 ​ 449 ​ 6,027 Total FICO AB ​ 379,171 ​ 492,806 ​ 218,462 ​ 174,126 ​ 100,560 ​ 608,605 ​ 954 ​ 59,088 ​ 2,033,772 FICO CDE (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ 160,388 ​ 178,262 ​ 112,640 ​ 79,357 ​ 54,861 ​ 323,189 ​ 27,884 ​ 22,056 ​ 958,637 Nonperforming ​ 120 ​ 974 ​ 1,250 ​ 1,606 ​ 2,127 ​ 13,177 ​ 151 ​ 661 ​ 20,066 Total FICO CDE ​ 160,508 ​ 179,236 ​ 113,890 ​ 80,963 ​ 56,988 ​ 336,366 ​ 28,035 ​ 22,717 ​ 978,703 Total consumer mortgage ​ $ 539,679 ​ $ 672,042 ​ $ 332,352 ​ $ 255,089 ​ $ 157,548 ​ $ 944,971 ​ $ 28,989 ​ $ 81,805 ​ $ 3,012,475 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer indirect: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 777,513 ​ $ 422,594 ​ $ 129,449 ​ $ 99,593 ​ $ 52,298 ​ $ 58,028 ​ $ 0 ​ $ 0 ​ $ 1,539,475 Nonperforming ​ 18 ​ 1 ​ 53 ​ 67 ​ 15 ​ 24 ​ 0 ​ 0 ​ 178 Total consumer indirect ​ $ 777,531 ​ $ 422,595 ​ $ 129,502 ​ $ 99,660 ​ $ 52,313 ​ $ 58,052 ​ $ 0 ​ $ 0 ​ $ 1,539,653 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 84,111 ​ $ 46,381 ​ $ 17,066 ​ $ 12,729 ​ $ 5,573 ​ $ 5,020 ​ $ 6,563 ​ $ 2 ​ $ 177,445 Nonperforming ​ 6 ​ 51 ​ 1 ​ 1 ​ 29 ​ 50 ​ 22 ​ 0 ​ 160 Total consumer direct ​ $ 84,117 ​ $ 46,432 ​ $ 17,067 ​ $ 12,730 ​ $ 5,602 ​ $ 5,070 ​ $ 6,585 ​ $ 2 ​ $ 177,605 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 69,575 ​ $ 72,270 ​ $ 37,964 ​ $ 31,506 ​ $ 16,068 ​ $ 41,097 ​ $ 132,703 ​ $ 30,569 ​ $ 431,752 Nonperforming ​ 0 ​ 10 ​ 114 ​ 169 ​ 105 ​ 606 ​ 563 ​ 677 ​ 2,244 Total home equity ​ $ 69,575 ​ $ 72,280 ​ $ 38,078 ​ $ 31,675 ​ $ 16,173 ​ $ 41,703 ​ $ 133,266 ​ $ 31,246 ​ $ 433,996 ​ (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. 97 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized ​ Converted to ​ ​ ​ December 31, 2021 2021 2020 2019 2018 2017 Prior Cost Basis Term Total Consumer mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO AB (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 496,372 ​ $ 220,171 ​ $ 178,589 ​ $ 113,505 ​ $ 116,417 ​ $ 566,123 ​ $ 0 ​ $ 32,175 ​ $ 1,723,352 Nonperforming ​ 0 ​ 266 ​ 0 ​ 131 ​ 435 ​ 3,236 ​ 0 ​ 0 ​ 4,068 Total FICO AB ​ 496,372 ​ 220,437 ​ 178,589 ​ 113,636 ​ 116,852 ​ 569,359 ​ 0 ​ 32,175 ​ 1,727,420 FICO CDE (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ 162,995 ​ 117,566 ​ 81,377 ​ 57,973 ​ 54,396 ​ 300,350 ​ 25,028 ​ 14,722 ​ 814,407 Nonperforming ​ 0 ​ 522 ​ 972 ​ 1,465 ​ 939 ​ 10,389 ​ 0 ​ 0 ​ 14,287 Total FICO CDE ​ 162,995 ​ 118,088 ​ 82,349 ​ 59,438 ​ 55,335 ​ 310,739 ​ 25,028 ​ 14,722 ​ 828,694 Total consumer mortgage ​ $ 659,367 ​ $ 338,525 ​ $ 260,938 ​ $ 173,074 ​ $ 172,187 ​ $ 880,098 ​ $ 25,028 ​ $ 46,897 ​ $ 2,556,114 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer indirect: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 590,857 ​ $ 204,529 ​ $ 182,458 ​ $ 107,683 ​ $ 39,385 ​ $ 64,750 ​ $ 0 ​ $ 0 ​ $ 1,189,662 Nonperforming ​ 0 ​ 34 ​ 0 ​ 24 ​ 17 ​ 12 ​ 0 ​ 0 ​ 87 Total consumer indirect ​ $ 590,857 ​ $ 204,563 ​ $ 182,458 ​ $ 107,707 ​ $ 39,402 ​ $ 64,762 ​ $ 0 ​ $ 0 ​ $ 1,189,749 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 72,584 ​ $ 28,905 ​ $ 24,768 ​ $ 12,340 ​ $ 4,396 ​ $ 4,577 ​ $ 6,214 ​ $ 4 ​ $ 153,788 Nonperforming ​ 0 ​ 4 ​ 18 ​ 1 ​ 0 ​ 0 ​ 0 ​ 0 ​ 23 Total consumer direct ​ $ 72,584 ​ $ 28,909 ​ $ 24,786 ​ $ 12,341 ​ $ 4,396 ​ $ 4,577 ​ $ 6,214 ​ $ 4 ​ $ 153,811 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 76,041 ​ $ 43,106 ​ $ 35,990 ​ $ 18,824 ​ $ 15,134 ​ $ 35,740 ​ $ 131,817 ​ $ 38,605 ​ $ 395,257 Nonperforming ​ 0 ​ 64 ​ 47 ​ 102 ​ 131 ​ 679 ​ 953 ​ 828 ​ 2,804 Total home equity ​ $ 76,041 ​ $ 43,170 ​ $ 36,037 ​ $ 18,926 ​ $ 15,265 ​ $ 36,419 ​ $ 132,770 ​ $ 39,433 ​ $ 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. ​ Business lending 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 lending loans as of December 31, 2022 and 2021 follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (000’s omitted) 2022 2021 Loans with allowance allocation ​ $ 0 ​ $ 7,102 Loans without allowance allocation ​ 3,163 ​ 7,417 Carrying balance ​ 3,163 ​ 14,519 Contractual balance ​ 4,201 ​ 16,963 Specifically allocated allowance ​ 0 ​ 566 ​ The average carrying balance of individually assessed loans was $ 12.2 million, and $ 33.4 million for the years ended December 31, 2022 and 2021, respectively. No interest income was recognized on individually assessed loans for the years ended December 31, 2022 and 2021. 98 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 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 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 2022, 2021 and 2020 was immaterial. Information regarding TDRs as of December 31, 2022, 2021 and 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Nonaccrual ​ Accruing ​ Total (000’s omitted) # Amount # Amount # Amount Business lending ​ 1 ​ $ 135 3 ​ $ 271 4 ​ $ 406 Consumer mortgage ​ 52 ​ 2,218 46 ​ 2,114 98 ​ 4,332 Consumer indirect ​ 0 ​ 0 56 ​ 600 56 ​ 600 Consumer direct ​ 0 ​ 0 18 ​ 5 18 ​ 5 Home equity ​ 9 ​ 108 9 ​ 178 18 ​ 286 Total ​ 62 ​ $ 2,461 132 ​ $ 3,168 194 ​ $ 5,629 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Nonaccrual ​ Accruing ​ Total (000’s omitted) # Amount # Amount # Amount Business lending ​ 10 ​ $ 1,011 4 ​ $ 811 14 ​ $ 1,822 Consumer mortgage ​ 61 ​ 2,694 47 ​ 2,420 108 ​ 5,114 Consumer indirect ​ 0 ​ 0 72 ​ 829 72 ​ 829 Consumer direct ​ 0 ​ 0 16 ​ 7 16 ​ 7 Home equity ​ 10 ​ 235 12 ​ 232 22 ​ 467 Total ​ 81 ​ $ 3,940 151 ​ $ 4,299 232 ​ $ 8,239 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Nonaccrual Accruing Total (000’s omitted) # Amount # Amount # Amount Business lending 6 ​ $ 529 4 ​ $ 191 10 ​ $ 720 Consumer mortgage 56 ​ 2,413 48 ​ 2,266 104 ​ 4,679 Consumer indirect 0 ​ 0 86 ​ 951 86 ​ 951 Consumer direct 0 ​ 0 23 ​ 85 23 ​ 85 Home equity 11 ​ 285 13 ​ 264 24 ​ 549 Total 73 ​ $ 3,227 174 ​ $ 3,757 247 ​ $ 6,984 ​ 99 Table of Contents The following table presents information related to loans modified in a TDR during the years ended December 31, 2022, 2021 and 2020. Of the loans noted in the table below, all consumer mortgage loans for the years ended December 31, 2022, 2021 and 2020 were modified due to a Chapter 7 bankruptcy as described previously. The financial effects of these restructurings were immaterial. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 December 31, 2021 December 31, 2020 (000’s omitted) # Amount # Amount # Amount Business lending ​ 0 ​ $ 0 ​ 5 ​ $ 1,371 ​ 1 ​ $ 4 Consumer mortgage ​ 7 ​ ​ 597 ​ 24 ​ 1,425 ​ 17 ​ ​ 1,339 Consumer indirect ​ 13 ​ ​ 178 ​ 23 ​ 284 ​ 31 ​ ​ 333 Consumer direct ​ 3 ​ ​ 5 ​ 2 ​ 7 ​ 3 ​ ​ 10 Home equity ​ 1 ​ ​ 4 ​ 0 ​ 0 ​ 3 ​ ​ 70 Total ​ 24 ​ $ 784 ​ 54 ​ $ 3,087 ​ 55 ​ $ 1,756 ​ Allowance for Credit Losses The following presents by loan segment the activity in the allowance for credit losses during 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PCD ​ ​ ​ ​ ​ ​ ​ Beginning Charge- ​ Allowance at ​ Ending (000’s omitted) ​ balance ​ offs ​ Recoveries ​ Acquisition ​ Provision ​ balance Business lending ​ $ 22,995 ​ $ ( 824 ) ​ $ 1,374 ​ $ 71 ​ $ ( 319 ) ​ $ 23,297 Consumer mortgage ​ 10,017 ​ ( 313 ) ​ 62 ​ ​ 0 ​ 4,577 ​ 14,343 Consumer indirect ​ 11,737 ​ ( 7,986 ) ​ 4,756 ​ ​ 0 ​ 9,345 ​ 17,852 Consumer direct ​ 2,306 ​ ( 1,252 ) ​ 772 ​ ​ 0 ​ 1,147 ​ 2,973 Home equity ​ 1,814 ​ ( 86 ) ​ 163 ​ ​ 0 ​ ( 297 ) ​ 1,594 Unallocated ​ 1,000 ​ 0 ​ 0 ​ ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 49,869 ​ ( 10,461 ) ​ 7,127 ​ ​ 71 ​ 14,453 ​ 61,059 Liabilities for off-balance-sheet credit exposures ​ 803 ​ 0 ​ 0 ​ ​ 0 ​ 320 ​ 1,123 Total allowance for credit losses ​ $ 50,672 ​ $ ( 10,461 ) ​ $ 7,127 ​ $ 71 ​ $ 14,773 ​ $ 62,182 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ Beginning ​ Charge- ​ ​ ​ ​ ​ ​ ​ Ending (000’s omitted) ​ balance offs Recoveries Provision balance Business lending ​ $ 30,072 ​ $ ( 1,922 ) ​ $ 796 ​ $ ( 5,951 ) ​ $ 22,995 Consumer mortgage ​ 10,672 ​ ( 426 ) ​ 91 ​ ( 320 ) ​ 10,017 Consumer indirect ​ 13,696 ​ ( 5,160 ) ​ 4,346 ​ ( 1,145 ) ​ 11,737 Consumer direct ​ 3,207 ​ ( 1,232 ) ​ 793 ​ ( 462 ) ​ 2,306 Home equity ​ 2,222 ​ ( 225 ) ​ 92 ​ ( 275 ) ​ 1,814 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 60,869 ​ ( 8,965 ) ​ 6,118 ​ ( 8,153 ) ​ 49,869 Liabilities for off-balance-sheet credit exposures ​ 1,489 ​ 0 ​ 0 ​ ( 686 ) ​ 803 Total allowance for credit losses ​ $ 62,358 ​ $ ( 8,965 ) ​ $ 6,118 ​ $ ( 8,839 ) ​ $ 50,672 ​ 100 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ Beginning ​ ​ Beginning ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ balance, ​ ​ balance, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ prior to the ​ ​ ​ after ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ adoption of ​ Impact of adoption of ​ ​ ​ ​ ​ ​ ​ Steuben ​ ​ ​ ​ Ending (000’s omitted) ASC 326 ​ ASC 326 ASC 326 ​ Charge-offs ​ Recoveries ​ acquisition ​ Provision ​ balance Business lending ​ $ 19,426 ​ $ 3,360 ​ $ 22,786 ​ $ ( 1,588 ) ​ $ 796 ​ $ 3,011 ​ $ 5,067 ​ $ 30,072 Consumer mortgage ​ 10,269 ​ ( 1,051 ) ​ 9,218 ​ ( 862 ) ​ 130 ​ 146 ​ 2,040 ​ 10,672 Consumer indirect ​ 13,712 ​ ( 997 ) ​ 12,715 ​ ( 6,382 ) ​ 3,992 ​ 183 ​ 3,188 ​ 13,696 Consumer direct ​ 3,255 ​ ( 643 ) ​ 2,612 ​ ( 1,633 ) ​ 743 ​ 87 ​ 1,398 ​ 3,207 Home equity ​ 2,129 ​ 808 ​ 2,937 ​ ( 199 ) ​ 28 ​ 235 ​ ( 779 ) ​ 2,222 Unallocated ​ 957 ​ 43 ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 0 ​ 1,000 Acquired impaired ​ 163 ​ ( 163 ) ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Allowance for credit losses – loans ​ 49,911 ​ 1,357 ​ 51,268 ​ ( 10,664 ) ​ 5,689 ​ 3,662 ​ 10,914 ​ 60,869 Liabilities for off-balance-sheet credit exposures ​ 0 ​ 1,185 ​ 1,185 ​ 0 ​ 0 ​ 67 ​ 237 ​ 1,489 Total allowance for credit losses ​ $ 49,911 ​ $ 2,542 ​ $ 52,453 ​ $ ( 10,664 ) ​ $ 5,689 ​ $ 3,729 ​ $ 11,151 ​ $ 62,358 ​ The allowance for credit losses increased to $ 61.1 million at December 31, 2022 compared to $ 49.9 million at December 31, 2021, driven by organic loan growth and the Elmira acquisition, as well as weakening economic forecasts. Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 25.1 million and $ 16.7 million at December 31, 2022 and 2021, respectively, 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, as adopted by the Company on January 1, 2020, 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. 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 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 December 31, 2022. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and include the impact of a decline in residential real estate and vehicle prices as well as inflation. The scenarios utilized forecast stable unemployment levels offset by deterioration in GDP growth, auto values, residential real estate and median household income, a result of inflationary pressures. 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. 101 Table of Contents ● 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. ● 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 year ended December 31, 2022 by portfolio segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s Business Consumer Consumer Consumer Home ​ omitted) ​ lending ​ mortgage ​ indirect ​ direct ​ equity ​ Total Purchases ​ $ 125,288 ​ $ 271,408 ​ $ 9,383 ​ $ 12,511 ​ $ 18,429 ​ $ 437,019 Sales ​ 0 ​ 5,309 ​ 0 ​ 0 ​ 0 ​ 5,309 ​ All purchases of loans were from the acquisition of Elmira. All sales of consumer mortgages during the year ended December 31, 2022 were sales of secondary market eligible residential mortgage loans. ​ ​ NOTE E: PREMISES AND EQUIPMENT Premises and equipment consist of the following at December 31: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Land and land improvements ​ $ 34,487 ​ $ 31,884 Bank premises ​ 158,312 ​ 151,724 Equipment ​ 72,960 ​ 85,391 Operating lease right-of-use assets ​ 30,069 ​ 31,754 Construction in progress ​ ​ 2,377 ​ ​ 4,786 Premises and equipment, gross ​ 298,205 ​ 305,539 Accumulated depreciation ​ ( 137,427 ) ​ ( 144,888 ) Premises and equipment, net ​ $ 160,778 ​ $ 160,651 ​ As of December 31, 2022, the Company had $ 5.4 million of premises and equipment held for sale, comprised of $ 2.5 million of land and land improvements and $ 2.9 million of bank premises, recorded in other assets in the consolidated statements of condition. ​ 102 Table of Contents NOTE F: GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ $ ( 65,069 ) ​ $ 12,304 ​ $ 69,403 ​ $ ( 60,316 ) ​ $ 9,087 Other intangibles ​ 119,813 ​ ( 71,121 ) ​ 48,692 ​ 116,799 ​ ( 60,660 ) ​ 56,139 Total amortizing intangibles ​ $ 197,186 ​ $ ( 136,190 ) ​ $ 60,996 ​ $ 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): ​ ​ ​ ​ ​ Year Amount 2023 ​ $ 13,698 2024 ​ ​ 11,601 2025 ​ 9,883 2026 ​ 8,745 2027 ​ 3,333 Thereafter ​ 13,736 Total ​ $ 60,996 ​ Shown below are the components of the Company’s goodwill at December 31, 2022, 2021, and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ December 31, ​ ​ ​ ​ December 31, (000’s omitted) ​ 2020 Activity 2021 Activity 2022 Goodwill ​ $ 793,708 ​ $ 5,401 ​ $ 799,109 ​ $ 42,732 ​ $ 841,841 ​ The Company performed a qualitative assessment for evaluating impairment of goodwill and other intangibles as of December 31, 2022, including assessments of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events and changes in share price. The results of the qualitative analysis indicated that there was no goodwill impairment at December 31, 2022 and therefore a quantitative analysis was not necessary. During 2022, the Company also performed a quarterly analysis to determine if triggering events occurred that would necessitate an interim qualitative assessment of goodwill or other intangible impairment. No triggering events or impairment was noted during these interim analyses. During 2021, the Company performed quarterly qualitative analyses of goodwill impairment and performed a quantitative assessment of its banking and financial services businesses during the fourth quarter of 2021 by comparing the fair value of the reporting unit with its carrying amount. Results of the analyses indicate there was no goodwill impairment in 2021. Mortgage Servicing Rights Under certain circumstances, the Company sells consumer residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Generally, the Company’s residential mortgage loans sold to third parties are sold on a non-recourse basis. Upon sale, a mortgage servicing right (“MSR”) is established, which represents the current fair value of future net cash flows expected to be realized for performing the servicing activities. The Company stratifies these assets based on predominant risk characteristics, namely expected term of the underlying financial instruments, and uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. MSRs are recorded in other assets at the lower of the initial capitalized amount, net of accumulated amortization or fair value. Mortgage loans serviced for others are not included in the accompanying consolidated statements of condition. 103 Table of Contents The following table summarizes the changes in carrying value of MSRs and the associated valuation allowance: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Carrying value before valuation allowance at beginning of period ​ $ 1,144 ​ $ 1,430 Additions ​ 83 ​ 233 Acquisitions ​ 2,879 ​ 0 Amortization ​ ( 801 ) ​ ( 519 ) Carrying value before valuation allowance at end of period ​ 3,305 ​ 1,144 Valuation allowance balance at beginning of period ​ 0 ​ ( 219 ) Impairment charges ​ ( 676 ) ​ ( 55 ) Impairment recoveries ​ 0 ​ 274 Valuation allowance balance at end of period ​ ( 676 ) ​ 0 Net carrying value at end of period ​ $ 2,629 ​ $ 1,144 Fair value of MSRs at end of period ​ $ 5,107 ​ $ 1,469 Principal balance of mortgage loans sold during the year ​ $ 5,309 ​ $ 20,133 Principal balance of loans serviced for others ​ $ 583,109 ​ $ 296,506 Custodial escrow balances maintained in connection with loans serviced for others ​ $ 10,534 ​ $ 4,934 ​ The following table summarizes the key economic assumptions used to estimate the value of the MSRs at December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 Weighted-average contractual life (in years) 21.6 21.4 ​ Weighted-average constant prepayment rate (CPR) 7.7 % 24.5 % Weighted-average discount rate 4.9 % 2.6 % ​ ​ ​ NOTE G: DEPOSITS Deposits recorded in the consolidated statements of condition consist of the following at December 31: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) ​ 2022 ​ 2021 Noninterest checking ​ $ 4,140,617 ​ $ 3,921,663 Interest checking ​ 3,231,096 ​ 3,201,225 Savings ​ 2,433,922 ​ 2,255,961 Money market ​ 2,299,965 ​ 2,603,988 Time ​ 906,708 ​ 928,331 Total deposits ​ $ 13,012,308 ​ $ 12,911,168 ​ Interest on deposits recorded in the consolidated statements of income consists of the following at December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) ​ 2022 ​ 2021 ​ 2020 Interest on interest checking ​ $ 3,340 ​ $ 1,142 ​ $ 2,182 Interest on savings ​ 671 ​ 598 ​ 665 Interest on money market ​ 4,019 ​ 1,393 ​ 2,685 Interest on time ​ 7,014 ​ 8,498 ​ 11,229 Total interest on deposits ​ $ 15,044 ​ $ 11,631 ​ $ 16,761 ​ 104 Table of Contents The approximate maturities of time deposits at December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts $250,000 (000’s omitted) ​ All Accounts ​ or Greater 2023 ​ $ 514,658 ​ $ 67,302 2024 ​ 282,044 ​ 53,970 2025 ​ 63,554 ​ 5,472 2026 ​ 24,567 ​ 262 2027 ​ 21,796 ​ 2,075 Thereafter ​ 89 ​ 0 Total ​ $ 906,708 ​ $ 129,081 ​ ​ ​ NOTE H: BORROWINGS Outstanding borrowings at December 31 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) ​ 2022 ​ 2021 Subordinated notes payable, includes premium of $ 249 and $ 277 , respectively ​ $ 3,249 ​ $ 3,277 Securities sold under agreement to repurchase, short term ​ 346,652 ​ 324,720 Overnight borrowings ​ 768,400 ​ 0 Other FHLB borrowings, includes discount of $ 319 and $ 0 , respectively ​ 19,474 ​ 1,888 Total borrowings ​ $ 1,137,775 ​ $ 329,885 ​ FHLB advances are collateralized by a blanket lien on the Company’s residential real estate loan portfolio and various investment securities. Borrowings at December 31, 2022 have contractual maturity dates as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average ​ ​ Carrying ​ Rate at (000’s omitted, except rate) ​ Value ​ December 31, 2022 January 3, 2023 ​ $ 1,115,052 3.32 % January 17, 2023 ​ ​ 2,000 ​ 2.33 % February 8, 2023 ​ 190 1.79 % July 3, 2023 ​ ​ 470 ​ 2.25 % October 23, 2023 ​ ​ 364 ​ 1.50 % January 29, 2024 ​ 2,013 3.62 % January 7, 2025 ​ 4,951 2.78 % January 29, 2025 ​ 4,937 2.59 % February 28, 2025 ​ 1,923 1.38 % October 1, 2025 ​ 262 1.50 % March 1, 2027 ​ 1,858 1.55 % February 28, 2028 ​ 3,249 4.67 % March 1, 2029 ​ 506 2.50 % Total ​ $ 1,137,775 3.30 % ​ The weighted-average interest rate on borrowings for the years ended December 31, 2022 and 2021 was 1.61 % and 0.48 %, respectively. The Bank has unused lines of credit of $ 25 .0 million at December 31, 2022. The Bank has unused borrowing capacity of approximately $ 1.08 billion through collateralized transactions with the FHLB and $ 490.5 million through collateralized transactions with the Federal Reserve. 105 Table of Contents As of December 31, 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 Company previously sponsored Steuben Statutory Trust II (“SST II”) until September 15, 2020 when the Company exercised its right to redeem all of the SST II debentures and associated preferred securities for a total of $ 2.1 million. The common stock of SST II was acquired in the Steuben acquisition. The trusts were 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. The debentures held by each trust were the sole assets of such trust. Distributions on the preferred securities issued by each trust were payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the debentures held by that trust and were recorded as interest expense in the consolidated financial statements. The preferred securities were subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Company had entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities subject to the terms of each of the guarantees. ​ ​ NOTE I: INCOME TAXES The provision for income taxes for the years ended December 31 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 2020 Current: ​ ​ ​ Federal ​ $ 41,025 ​ $ 35,507 ​ $ 35,728 State and other ​ 9,899 ​ 8,158 ​ 8,008 Deferred: ​ ​ ​ ​ Federal ​ 1,163 ​ 5,493 ​ ( 2,005 ) State and other ​ 146 ​ 2,496 ​ ( 331 ) Provision for income taxes ​ $ 52,233 ​ $ 51,654 ​ $ 41,400 ​ 106 Table of Contents Components of the net deferred tax asset, included in other assets, as of December 31, 2022 and of the net deferred tax liability, included in other liabilities, as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Investment securities ​ $ 191,953 ​ $ 0 Allowance for credit losses ​ ​ 15,346 ​ ​ 12,435 Employee benefits ​ 5,775 ​ 7,708 Operating lease liabilities ​ 7,552 ​ 7,955 Other, net ​ 4,385 ​ 1,250 Deferred tax asset ​ 225,011 ​ 29,348 ​ ​ ​ ​ ​ ​ ​ Investment securities ​ 0 ​ 7,227 Goodwill and intangibles ​ 39,454 ​ 41,917 Operating lease right-of-use assets ​ 7,303 ​ 7,693 Loan origination costs ​ 9,731 ​ 8,993 Depreciation ​ 96 ​ 535 Mortgage servicing rights ​ 640 ​ 278 Pension ​ 18,154 ​ 22,950 Deferred tax liability ​ 75,378 ​ 89,593 Net deferred tax asset (liability) ​ $ 149,633 ​ $ ( 60,245 ) ​ The Company has determined that no valuation allowance is necessary as it is more likely than not that the gross deferred tax assets will be realized through future reversals of existing temporary differences and through future taxable income. A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % Increase (reduction) in taxes resulting from: ​ ​ Tax-exempt interest ( 1.3 ) ( 1.1 ) ( 1.5 ) ​ State income taxes, net of federal benefit 3.3 3.6 3.0 ​ Stock-based compensation ( 0.3 ) ( 0.9 ) ( 0.8 ) ​ Federal tax credits ( 1.0 ) ( 1.0 ) ( 1.3 ) ​ Other, net 0.0 ( 0.2 ) ( 0.3 ) ​ Effective income tax rate 21.7 % 21.4 % 20.1 % ​ As of December 31, 2022, 2021 and 2020, there was no amount of material unrecognized tax benefits that would impact the Company’s effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of various examinations and expiration of statutes of limitations on prior tax returns. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as part of income taxes in the consolidated statements of income. The accrued interest related to tax positions was immaterial. The Company’s federal and state income tax returns are routinely subject to examination from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Future examinations by taxing authorities of the Company’s federal or state tax returns could have a material impact on the Company’s results of operations. The Company’s federal income tax returns for years after 2018 may still be examined by the Internal Revenue Service. New York State income tax returns for years after 2017 may still be examined by the New York Department of Taxation and Finance. The Company is currently under examination by the New York Department of Taxation and Finance in connection with tax years 2015 to 2017, and has not received notice of proposed adjustments. It is not possible to estimate if and when those examinations may be completed. 107 Table of Contents ​ NOTE J: LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES The Company’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to the Company. In addition to the capital requirements discussed below, the circumstances under which the Bank may pay dividends are limited by federal statutes, regulations, and policies. For example, as a national bank, the Bank must obtain the approval of the OCC for payments of dividends if the total of all dividends declared in any calendar year would exceed the total of the Bank’s net profits, as defined by applicable regulations, for that year, combined with its retained net profits for the preceding two years. Furthermore, the Bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts, as defined by applicable regulations. At December 31, 2022, the Bank had approximately $ 173.1 million in undivided profits legally available for the payment of dividends. In addition, the Board of Governors of the Federal Reserve System (“FRB”) and the OCC are authorized to determine under certain circumstances that the payment of dividends would be an unsafe or unsound practice and to prohibit payment of such dividends. The FRB has indicated that banking organizations should generally pay dividends only out of current operating earnings. There are also statutory limits on the transfer of funds to the Company by its banking subsidiary, whether in the form of loans or other extensions of credit, investments or assets purchases. Such transfer by the Bank to the Company generally is limited in amount to 10 % of the Bank’s capital and surplus, or 20 % in the aggregate. Furthermore, such loans and extensions of credit are required to be collateralized in specific amounts. ​ 108 Table of Contents NOTE K: PENSION AND OTHER BENEFIT PLANS Pension and post-retirement 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. Using a measurement date of December 31, the following table shows the funded status of the Company’s plans reconciled with amounts reported in the Company’s consolidated statements of condition: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ Post-retirement Benefits (000’s omitted) 2022 2021 2022 2021 Change in benefit obligation: ​ ​ ​ ​ ​ Benefit obligation at the beginning of year ​ $ 183,270 ​ $ 190,361 ​ $ 1,529 ​ $ 1,718 Service cost ​ 4,959 ​ 5,920 ​ 0 ​ 0 Interest cost ​ 5,334 ​ 5,036 ​ 68 ​ 44 Plan amendment / acquisition ​ 1,851 ​ 0 ​ 536 ​ 0 Participant contributions ​ 0 ​ 0 ​ 0 ​ 0 Deferred actuarial (gain)/loss ​ ( 31,759 ) ​ ( 4,881 ) ​ ( 306 ) ​ ( 85 ) Benefits paid ​ ( 12,294 ) ​ ( 13,166 ) ​ ( 171 ) ​ ( 148 ) Benefit obligation at end of year ​ 151,361 ​ 183,270 ​ 1,656 ​ 1,529 Change in plan assets: ​ ​ ​ ​ ​ ​ ​ ​ Fair value of plan assets at beginning of year ​ 290,687 ​ 272,600 ​ 0 ​ 0 Actual return of plan assets ​ ( 34,967 ) ​ 27,614 ​ 0 ​ 0 Participant contributions ​ 0 ​ 0 ​ 0 ​ 0 Employer contributions ​ 906 ​ 3,639 ​ 171 ​ 148 Plan acquisition ​ 0 ​ 0 ​ 0 ​ 0 Benefits paid ​ ( 12,294 ) ​ ( 13,166 ) ​ ( 171 ) ​ ( 148 ) Fair value of plan assets at end of year ​ 244,332 ​ 290,687 ​ 0 ​ 0 Over/(Under) funded status at year end ​ $ 92,971 ​ $ 107,417 ​ $ ( 1,656 ) ​ $ ( 1,529 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amounts recognized in the consolidated statement of condition were: ​ ​ ​ ​ Other assets ​ $ 106,986 ​ $ 127,538 ​ $ 0 ​ $ 0 Other liabilities ​ ( 14,015 ) ​ ( 20,121 ) ​ ( 1,656 ) ​ ( 1,529 ) Amounts recognized in accumulated other comprehensive loss/(income) (“AOCI”) were: ​ ​ ​ ​ Net loss ​ $ 38,894 ​ $ 16,977 ​ $ 255 ​ $ 585 Net prior service cost (credit) ​ 3,112 ​ 3,969 ​ ( 728 ) ​ ( 907 ) Pre-tax AOCI ​ 42,006 ​ 20,946 ​ ( 473 ) ​ ( 322 ) Taxes ​ ( 10,351 ) ​ ( 5,236 ) ​ 119 ​ 82 AOCI at year end ​ $ 31,655 ​ $ 15,710 ​ $ ( 354 ) ​ $ ( 240 ) ​ The benefit obligation for the defined benefit pension plan was $ 137.3 million and $ 163.1 million as of December 31, 2022 and 2021, respectively, and the fair value of plan assets as of December 31, 2022 and 2021 was $ 244.3 million and $ 290.7 million, respectively. The defined benefit pension plan was amended effective December 31, 2022 to transfer certain obligations from the Company’s non-qualified supplemental pension plan, deferred compensation plan and Restoration Plan (as defined below) into the qualified defined benefit pension plan. The Company has unfunded supplemental pension plans for certain key active and retired executives. The projected benefit obligation for the unfunded supplemental pension plan for certain key executives was $ 14.0 million and $ 19.8 million for 2022 and 2021, respectively. The Company also has an unfunded stock balance plan for certain of its nonemployee directors. The projected benefit obligation for the unfunded stock balance plan was immaterial for 2022 and 2021, respectively. 109 Table of Contents The Company has a non-qualified deferred compensation plan for certain employees (“Restoration Plan”) whose benefits under tax-qualified retirement plans are restricted by the Internal Revenue Code Section 401(a)(17) limitation on compensation. The projected benefit obligation for the unfunded Restoration Plan was immaterial for 2022 and $ 0.3 million for 2021. Effective December 31, 2009, the Company terminated its post-retirement medical program for current and future employees. Remaining plan participants will include only existing retirees as of December 31, 2010. This change was accounted for as a negative plan amendment and a $ 3.5 million, net of income taxes, benefit for prior service was recognized in AOCI in 2009. This negative plan amendment is being amortized over the expected benefit utilization period of remaining plan participants. Amounts recognized in accumulated other comprehensive income, net of tax, for the year ended December 31, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ Post-retirement Benefits (000’s omitted) 2022 2021 2022 2021 Prior service cost/(credit) ​ $ ( 648 ) ​ $ ( 288 ) ​ $ 135 ​ $ 136 Net (gain) loss ​ 16,593 ​ ( 13,152 ) ​ ( 249 ) ​ ( 99 ) Total ​ $ 15,945 ​ $ ( 13,440 ) ​ $ ( 114 ) ​ $ 37 ​ The weighted-average assumptions used to determine the benefit obligations as of December 31 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ Post-retirement Benefits ​ 2022 2021 2022 2021 Discount rate 5.40 % 3.10 % 5.40 % 3.10 % Expected return on plan assets 6.70 % 6.70 % N/A N/A ​ Rate of compensation increase ​ 4.50 % for 2023, ​ 4.00 % for 2022, % ​ ​ ​ ​ ​ 3.50 % for 2024 + 3.50 % for 2023 + N/A ​ N/A ​ Interest crediting rates ​ 6.00 % while employed, ​ 6.00 % while employed, ​ ​ ​ ​ ​ ​ ​ 3.55 % after termination ​ 1.94 % after termination ​ N/A ​ N/A ​ ​ The net periodic benefit cost as of December 31 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ Post-retirement Benefits (000’s omitted) 2022 2021 2020 2022 2021 2020 Service cost ​ $ 4,959 ​ $ 5,920 ​ $ 5,750 ​ $ 0 ​ $ 0 ​ $ 0 Interest cost ​ 5,334 ​ 5,036 ​ 5,657 ​ 68 ​ 44 ​ 57 Expected return on plan assets ​ ( 19,025 ) ​ ( 18,783 ) ​ ( 16,306 ) ​ 0 ​ 0 ​ 0 Plan amendment ​ ( 556 ) ​ 0 ​ ( 637 ) ​ 0 ​ 0 ​ 0 Amortization of unrecognized net loss ​ 842 ​ 3,600 ​ 3,239 ​ 23 ​ 45 ​ 40 Amortization of prior service cost ​ 615 ​ 379 ​ 241 ​ ( 179 ) ​ ( 179 ) ​ ( 179 ) Net periodic (benefit) ​ $ ( 7,831 ) ​ $ ( 3,848 ) ​ $ 2,056 ​ $ ( 88 ) ​ $ ( 90 ) ​ $ ( 82 ) ​ Prior service costs in which all or almost all of the plan’s participants are fully eligible for benefits under the plan are amortized on a straight-line basis over the expected future working years of all active plan participants. Unrecognized gains or losses are amortized using the “corridor approach”, which is the minimum amortization required. Under the corridor approach, the net gain or loss in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of the assets is amortized on a straight-line basis over the expected future working years of all active plan participants. 110 Table of Contents The weighted-average assumptions used to determine the net periodic pension cost for the years ended December 31 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ Post-retirement Benefits ​ 2022 2021 2020 2022 2021 2020 Discount rate 3.10 % 2.80 % 3.50 % 3.10 % 2.80 % 3.60 % Expected return on plan assets 6.70 % 7.00 % 7.00 % N/A N/A N/A ​ Rate of compensation 4.00 % for 2022, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ increase ​ 3.50 % for 2023 + 3.50 % 3.50 % N/A N/A N/A ​ Interest crediting rates ​ 6.00 % while employed, ​ 6.00 % while employed, ​ 6.00 % while employed, ​ ​ ​ ​ ​ ​ ​ ​ ​ 1.94 % after termination ​ 1.42 % after termination ​ 2.16 % after termination ​ N/A ​ N/A ​ N/A ​ ​ The amount of benefit payments that are expected to be paid over the next ten years are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ ​ Post-retirement (000’s omitted) ​ Benefits ​ Benefits 2023 ​ $ 11,583 ​ $ 192 2024 ​ 11,965 ​ 154 2025 ​ 11,693 ​ 152 2026 ​ 12,934 ​ 150 2027 ​ 12,723 ​ 148 2028-2032 ​ 64,686 ​ 972 ​ The payments reflect future service and are based on various assumptions including retirement age and form of payment (lump-sum versus annuity). Actual results may differ from these estimates. The assumed discount rate is used to reflect the time value of future benefit obligations. The discount rate was determined based upon the yield on high-quality fixed income investments expected to be available during the period to maturity of the pension benefits. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase the Company’s obligation and future expense while an increase would have the opposite effect. The expected long-term rate of return was estimated by taking into consideration asset allocation, long-term capital market assumptions, reviewing historical returns on the type of assets held and current economic factors. The mortality tables used to determine future benefit obligations under the plan as of December 31, 2021 were the sex-distinct Pri-2012 Mortality Tables for employees, healthy annuitants and contingent survivors, adjusted for mortality improvements using Scale MP-2021 mortality improvement scale on a generational basis. The appropriateness of the assumptions are reviewed annually. Plan Assets The investment objective for the defined benefit pension plan is to achieve an average annual total return over a five-year period equal to the assumed rate of return used in the actuarial calculations. At a minimum performance level, the portfolio should earn the return obtainable on high quality intermediate-term bonds. The Company’s perspective regarding portfolio assets combines both preservation of capital and moderate risk-taking. Asset allocation favors fixed income securities, with a target allocation of approximately 60 % equity securities and 40 % fixed income securities and money market funds. Due to the volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between acceptable ranges. Prohibited transactions include purchase of securities on margin, uncovered call options, and short sale transactions. 111 Table of Contents The fair values of the Company’s defined benefit pension plan assets at December 31, 2022 by asset category are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Significant ​ Significant ​ ​ ​ ​ Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ Asset category (000’s omitted) Level 1 Level 2 Level 3 Total Cash equivalents ​ $ 18,625 ​ $ 0 ​ $ 0 ​ $ 18,625 Equity securities: ​ ​ ​ ​ ​ ​ ​ U.S. large-cap ​ 52,682 ​ 0 ​ 0 ​ 52,682 U.S. mid/small cap ​ 16,432 ​ 0 ​ 0 ​ 16,432 CBU common stock ​ 6,427 ​ 0 ​ 0 ​ 6,427 International ​ 51,725 ​ 0 ​ 0 ​ 51,725 Other ​ 1,273 ​ 0 ​ 0 ​ 1,273 ​ ​ 128,539 ​ 0 ​ 0 ​ 128,539 ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities: ​ ​ ​ ​ ​ ​ ​ Government securities ​ 44,995 ​ 11,567 ​ 0 ​ 56,562 Investment grade bonds ​ 12,964 ​ 5,538 ​ 0 ​ 18,502 High yield (a) ​ 7,134 ​ 0 ​ 0 ​ 7,134 ​ ​ 65,093 ​ 17,105 ​ 0 ​ 82,198 ​ ​ ​ ​ ​ ​ ​ ​ Other investments (b) ​ 14,342 ​ 0 ​ 0 ​ 14,342 ​ ​ ​ ​ ​ ​ ​ ​ Total (c) ​ $ 226,599 ​ $ 17,105 ​ $ 0 ​ $ 243,704 ​ The fair values of the Company’s defined benefit pension plan assets at December 31, 2021 by asset category are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Significant ​ Significant ​ ​ ​ ​ ​ Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ Asset category (000’s omitted) Level 1 Level 2 Level 3 Total Cash equivalents ​ $ 19,605 ​ $ 0 ​ $ 0 ​ $ 19,605 Equity securities: ​ ​ ​ ​ ​ ​ ​ U.S. large-cap ​ 75,180 ​ 0 ​ 0 ​ 75,180 U.S. mid/small cap ​ 12,052 ​ 0 ​ 0 ​ 12,052 CBU common stock ​ 7,604 ​ 0 ​ 0 ​ 7,604 International ​ 73,891 ​ 0 ​ 0 ​ 73,891 Other ​ ​ 1,091 ​ ​ 0 ​ ​ 0 ​ ​ 1,091 ​ ​ 169,818 ​ 0 ​ 0 ​ 169,818 ​ ​ ​ ​ ​ ​ ​ ​ Fixed income securities: ​ ​ ​ ​ ​ ​ ​ Government securities ​ 19,988 ​ 5,974 ​ 0 ​ 25,962 Investment grade bonds ​ 41,374 ​ 136 ​ 0 ​ 41,510 High yield (a) ​ 8,625 ​ 0 ​ 0 ​ 8,625 ​ ​ 69,987 ​ 6,110 ​ 0 ​ 76,097 ​ ​ ​ ​ ​ ​ ​ ​ Other investments (b) ​ 24,727 ​ 0 ​ 0 ​ 24,727 ​ ​ ​ ​ ​ ​ ​ ​ Total (c) ​ $ 284,137 ​ $ 6,110 ​ $ 0 ​ $ 290,247 ​ (a) This category is exchange-traded funds representing a diversified index of high yield corporate bonds. (b) This category is comprised of exchange-traded funds and mutual funds holding non-traditional investment classes including private equity funds and alternative exchange funds. (c) Excludes dividends and interest receivable totaling $ 0.6 million and $ 0.4 million at December 31, 2022 and 2021, respectively. 112 Table of Contents ​ The valuation techniques used to measure fair value for the items in the table above are as follows: ● Money market funds - Managed portfolios, including commercial paper and other fixed income securities issued by U.S. and foreign corporations, asset-backed commercial paper, U.S. government securities, obligations of foreign governments and U.S. and foreign banks, which are valued at the closing price reported on the market on which the underlying securities are traded. ● Equity securities and other investments – Mutual funds, equity securities and common stock of the Company which are valued at the quoted market price of shares held at year-end. ● Fixed income securities - U.S. Treasuries, municipal bonds and notes, government sponsored entities, and corporate debt valued at the closing price reported on the active market on which the individual securities are traded or for municipal bonds and notes based on quoted prices for similar assets in the active market. The Company makes contributions to its funded qualified pension plan as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected return on such assets, and the value of the accumulated benefit obligation. The Company made a $ 0.1 million and $ 2.9 million contribution to its defined benefit pension plan in 2022 and 2021, respectively. The Company funds the payment of benefit obligations for the supplemental pension and post-retirement plans because such plans do not hold assets for investment. 401(k) Employee Stock Ownership Plan The Company has a 401(k) Employee Stock Ownership Plan in which employees can contribute from 1 % to 90 % of eligible compensation, with the first 3 % being eligible for a 100 % matching contribution in the form of Company common stock and the next 3 % being eligible for a 50 % matching contributions in the form of Company common stock. The expense recognized under this plan for the years ended December 31, 2022, 2021 and 2020 was $ 7.1 million, $ 6.9 million, and $ 6.3 million, respectively. Effective January 1, 2010, the defined benefit pension plan was modified to a new plan design that includes an interest credit contribution to be made to the 401(k) plan. The expense recognized for this interest credit contribution for the years ended December 31, 2022, 2021, and 2020 was $ 1.4 million, $ 1.1 million, and $ 0.9 million, respectively. The Company acquired Fringe Benefits Design of Minnesota, Inc. 401(k) Profit Sharing Plan with the FBD acquisition and The Steuben Trust Company 401(k) Plan with the Steuben acquisition. Effective January 1, 2022 and January 1, 2021, the Fringe Benefits Design of Minnesota, Inc. 401(k) Profit Sharing Plan and the Steuben Trust Company 401(k) Plan were merged into and became part of the Community Bank System, Inc. 401(k) Employee Stock Ownership Plan, respectively. Other Deferred Compensation Arrangements In addition to the supplemental pension plans for certain executives, the Company has nonqualified deferred compensation arrangements for several former directors, officers and key employees. All benefits provided under these plans are unfunded and payments to plan participants are made by the Company. At December 31, 2022 and 2021, the Company has recorded a liability of $ 4.5 million and $ 5.1 million, respectively. The expense recognized under these plans for the years ended December 31, 2022, 2021, and 2020 was approximately $ 0.2 million, $ 0.2 million, and $ 0.4 million, respectively. 113 Table of Contents Deferred Compensation Plans for Directors Directors of the Company may defer all or a portion of their director fees under the Deferred Compensation Plan for Directors. Under this plan, there is a separate account for each participating director which is credited with the amount of shares that could have been purchased with the director’s fees as well as any dividends on such shares. On the distribution date, the director will receive common stock equal to the accumulated share balance in their account. As of December 31, 2022 and 2021, there were 136,256 and 137,945 shares credited to the participants’ accounts, for which a liability of $ 5.5 million and $ 5.1 million was accrued, respectively. The expense recognized under the plan for the years ended December 31, 2022, 2021 and 2020, was $ 0.2 million, $ 0.2 million, and $ 0.2 million, respectively. The Company acquired deferred compensation plans for certain non-employee directors and trustees of Merchants Bancshares, Inc. (“Merchants”). Under the terms of these acquired deferred compensation plans, participating directors could elect to have all, or a specified percentage, of their Merchants director’s fees for a given year paid in the form of cash or deferred in the form of restricted shares of Merchants’ common stock. Directors who elected to have their compensation deferred were credited with a number of shares of Merchants’ common stock equal in value to the amount of fees deferred. These shares were converted to shares of Company stock in connection with the acquisition and are held in a rabbi trust. The shares held in the rabbi trust are considered outstanding for purposes of computing earnings per share. The participating director may not sell, transfer or otherwise dispose of these shares prior to distribution. With respect to shares of common stock issued or otherwise transferred to a participating director, the participating director has the right to receive dividends or other distributions thereon. ​ NOTE L: STOCK-BASED COMPENSATION PLANS The Company has a long-term incentive program for directors, officers and employees. Under this program, the Company initially authorized four million shares of Company common stock for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights. The long-term incentive program was amended effective May 25, 2011, May 14, 2014 and May 17, 2017 to authorize an additional 900,000 shares, 1,000,000 shares and 1,000,000 shares respectively, for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights. Effective May 18, 2022 a new plan was put in place that authorized 600,000 shares of Company common stock for the same purpose. As of December 31, 2022, the Company has authorization to grant up to approximately 1 .0 million additional shares of Company common stock for these instruments. Nonqualified Stock Options The Company recognized stock-based compensation expense related to non-qualified stock options of $ 2.9 million, $ 2.6 million and $ 2.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. A related income tax benefit was recognized of $ 0.7 million, $ 0.6 million and $ 0.7 million for the 2022, 2021 and 2020 years, respectively. The nonqualified (offset) stock options in its Director’s Stock Balance Plan vest and become exercisable immediately and expire one year after the date the director retires or two years in the event of death. The remaining options have a ten-year term, and vest and become exercisable on a grant-by-grant basis, ranging from immediate vesting to ratably over a five-year period. 114 Table of Contents Activity in this long-term incentive program is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock Options ​ ​ ​ ​ Weighted- ​ ​ ​ ​ average Exercise ​ Outstanding Price of Shares Outstanding at December 31, 2020 1,542,259 ​ $ 45.49 Granted 168,976 ​ 79.68 Exercised ( 310,423 ) ​ 40.17 Forfeited ( 8,107 ) ​ 61.56 Outstanding at December 31, 2021 1,392,705 ​ 50.73 Granted 173,313 ​ 71.78 Exercised ( 67,566 ) ​ 41.61 Forfeited ( 13,430 ) ​ 67.88 Outstanding at December 31, 2022 1,485,022 ​ 53.45 Exercisable at December 31, 2022 1,005,851 ​ $ 47.31 ​ The following table summarizes the information about stock options outstanding under the Company’s stock option plan at December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options outstanding ​ Options exercisable ​ ​ ​ ​ Weighted- ​ Weighted- ​ ​ ​ Weighted- ​ ​ ​ ​ average ​ average ​ ​ ​ average ​ ​ ​ ​ Exercise ​ Remaining ​ ​ ​ Exercise Range of Exercise Price Shares Price Life (years) Shares Price $ 0.00 – $ 25.00 40,002 ​ $ 23.04 4.00 40,002 ​ $ 23.04 $ 25.01 – $ 35.00 51,744 ​ 29.79 0.21 51,744 ​ 29.79 $ 35.01 – $ 45.00 386,999 ​ 37.07 2.45 386,999 ​ 37.07 $ 45.01 – $ 55.00 674,921 ​ 55.55 5.86 472,240 ​ 56.06 $ 55.01 – $ 81.00 331,356 ​ 75.67 8.68 54,866 ​ 78.44 TOTAL 1,485,022 ​ $ 47.31 5.35 1,005,851 ​ $ 47.31 ​ The weighted-average remaining contractual term of outstanding and exercisable stock options at December 31, 2022 is 5.35 years and 4.14 years, respectively. The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2022 is $ 18.3 million and $ 16.6 million, respectively. 115 Table of Contents Management estimated the fair value of options granted using the Black-Scholes option-pricing model . This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. As a result, the Black-Scholes model is not necessarily a precise indicator of the value of an option, but it is commonly used for this purpose. The Black-Scholes model requires several assumptions, which management developed based on historical trends and current market observations. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Weighted-average Fair Value of Options Granted ​ $ 17.86 ​ $ 18.43 ​ $ 10.86 ​ Assumptions: ​ ​ ​ ​ ​ ​ ​ Weighted-average expected life (in years) ​ 6.50 ​ 6.50 ​ 6.50 ​ Future dividend yield ​ 2.41 % 2.48 % 2.57 % Share price volatility ​ 29.88 % 30.09 % 29.29 % Weighted-average risk-free interest rate ​ 2.16 % 1.28 % 0.67 % ​ Unrecognized stock-based compensation expense related to non-vested stock options totaled $ 5.6 million at December 31, 2022. The weighted-average period over which this unrecognized expense would be recognized is 3.2 years. The total fair value of stock options vested during 2022, 2021, and 2020 were $ 2.7 million, $ 2.5 million and $ 2.5 million, respectively. During the 12 months ended December 31, 2022 and 2021, proceeds from stock option exercises totaled $ 3.2 million and $ 14.2 million, respectively, and the related tax benefits from exercise were approximately $ 0.3 million and $ 1.8 million, respectively. During the twelve months ended December 31, 2022 and 2021, approximately 0.06 million and 0.3 million shares, respectively, were issued in connection with stock option exercises each year. The total intrinsic value of options exercised during 2022, 2021 and 2020 were $ 2.0 million, $ 10.3 million and $ 6.6 million, respectively. Restricted Stock Awards Compensation expense is recognized over the vesting period of the awards based on the fair value of the Company’s stock at grant date. The Company recognized stock-based compensation expense related to restricted stock vesting recognized in the income statement for 2022, 2021 and 2020 was approximately $ 3.8 million, $ 2.8 million and $ 2.7 million, respectively. The fair value of restricted stock awards is based on the end-of-day share price of the Company’s stock on the grant date. Restricted stock awards granted prior to 2022 vest ratably over a five-year period and restricted stock awards granted in 2022 and thereafter vest ratably over a three-year period. During the forfeiture period, shares that have not been forfeited have the right to vote and the right to receive dividends. 116 Table of Contents A summary of the status of the Company’s unvested restricted stock awards as of December 31, 2022, and changes during the twelve months ended December 31, 2022 and 2021, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted ​ Weighted-average ​ Shares grant date fair value Unvested at December 31, 2020 127,432 ​ $ 53.97 Awards 51,456 ​ 79.51 Forfeitures ( 2,041 ) ​ 55.39 Vestings ( 47,399 ) ​ 53.13 Unvested at December 31, 2021 129,448 ​ 64.32 Awards 56,871 ​ 71.58 Forfeitures ( 2,940 ) ​ 67.44 Vestings ( 49,859 ) ​ 62.86 Unvested at December 31, 2022 133,520 ​ $ 67.89 ​ Unrecognized stock-based compensation expense related to unvested restricted stock totaled $ 6.4 million at December 31, 2022, which will be recognized as expense over the next three or five years according to the awards vesting schedule. The weighted-average period over which this unrecognized expense would be recognized is 2.4 years. The total fair value of restricted stock vested during 2022, 2021, and 2020 were $ 3.1 million, $ 2.5 million and $ 2.7 million, respectively. ​ Performance Awards The long-term incentive program provides for the issuance of shares of performance award restricted stock to officers and key employees. There are two sets of performance criteria based on the individual award; (1) based on the Company’s cumulative three year Relative Total Shareholder Return (“TSR”) ranking compared to the constituents of the KBW Regional Bank Index, and continued employment weighted at 50 %; and (2) three year Average Relative Return on Average Core Tangible Common Equity (“Core ROATCE”) Relative Total Performance Goal weighted at 50 % . Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. Management estimated the fair value of the stock granted under performance criteria (1) using the Monte Carlo Simulation and stock granted under performance criteria (2) using the grant date fair value. Performance shares cliff vest based on performance results for a three year period. Compensation cost is estimated based on the probability that the performance conditions will be achieved. As of December 31, 2022, the compensation cost is estimated at 90 % payout under the terms of the plan for the different performance sets. At each reporting period, the Company will reassess the likelihood of achieving the performance criteria and will adjust compensation expense as needed. The shares have voting rights. Upon vesting of the performance shares, any dividends declared during the vesting period will be paid based on the shares vested. Total shares issuable under the plan are 31,999 at December 31, 2022 and all shares were issued in 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ​ ​ ​ ​ ​ Restricted ​ Weighted-average ​ Shares grant date fair value Unvested at December 31, 2020 48,976 ​ $ 29.71 Awards 0 ​ 0.00 Forfeitures ( 578 ) ​ 29.71 Vestings ( 578 ) ​ 29.71 Unvested at December 31, 2021 47,820 ​ 29.71 Awards 35,815 ​ 34.93 Forfeitures ( 51,000 ) ​ 30.02 Vestings ( 636 ) ​ 35.89 Unvested at December 31, 2022 31,999 ​ $ 34.93 ​ Unrecognized stock-based compensation expense related to unvested performance restricted stock totaled $ 0.7 million at December 31, 2022, which will be recognized as expense over the next three years . The weighted-average period over which this unrecognized expense would be recognized is 2.0 years . The total fair value of restricted stock vested during 2022, 2021, and 2020 were $ 0.02 million, $ 0.01 million and $ 0.1 million, respectively. 117 Table of Contents NOTE M: 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 December 31, 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. At December 31, 2022 weighted-average anti-dilutive stock options outstanding were immaterial and were 0.1 million and 0.6 million at December 31, 2021 and 2020, respectively, which were not included in the computation below. The following is a reconciliation of basic to diluted earnings per share for the years ended December 31, 2022, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted, except per share data) 2022 2021 2020 Net income ​ $ 188,081 ​ $ 189,694 ​ $ 164,676 Income attributable to unvested stock-based compensation awards ​ ( 533 ) ​ ( 445 ) ​ ( 514 ) Income available to common shareholders ​ $ 187,548 ​ $ 189,249 ​ $ 164,162 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding – basic ​ 53,896 ​ 53,977 ​ 52,969 Basic earnings per share ​ $ 3.48 ​ $ 3.51 ​ $ 3.10 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 188,081 ​ $ 189,694 ​ $ 164,676 Income attributable to unvested stock-based compensation awards ​ ( 533 ) ​ ( 445 ) ​ ( 514 ) Income available to common shareholders ​ $ 187,548 ​ $ 189,249 ​ $ 164,162 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding ​ 53,896 ​ 53,977 ​ 52,969 Assumed exercise of stock options ​ 312 ​ 423 ​ 352 Weighted-average common shares outstanding – diluted ​ 54,208 ​ 54,400 ​ 53,321 Diluted earnings per share ​ $ 3.46 ​ $ 3.48 ​ $ 3.08 Cash dividends declared per share ​ $ 1.74 ​ $ 1.70 ​ $ 1.66 ​ Stock Repurchase Program At its December 2022 meeting, the Board approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2023. 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. At its December 2021 meeting, the Board approved a stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2022. There were 250,000 shares of treasury stock purchases made under this authorization in 2022. ​ 118 Table of Contents NOTE N: 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 at December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Commitments to extend credit ​ $ 1,486,791 ​ $ 1,443,879 Standby letters of credit ​ 57,347 ​ 42,684 Total ​ $ 1,544,138 ​ $ 1,486,563 ​ The Company is typically required to maintain a reserve balance, as established by the FRB. Effective on March 26, 2020, the FRB reduced this cash reserve requirement to zero percent. As a result, the Company had no required reserve as of December 31, 2022 and 2021. The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings or other matters in which claims for monetary damages are asserted. As of December 31, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters 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 matters. 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 such matters 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. The Company does not believe that the outcome of pending or threatened litigation or other matters 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. The Company recorded $ 3.0 million in litigation accrual in 2020 related to a settlement of a purported class action lawsuit regarding the Bank’s deposit account terms and overdraft disclosures. The Company executed a settlement agreement with respect to the lawsuit in the fourth quarter of 2020 providing for a release of all claims asserted by class members in the action, and the Company does not anticipate that additional amounts will be accrued for this matter in future periods. Notice of the settlement terms was provided to all class members and no objections to the settlement were received prior to expiration of the notice period. The hearing for final Court approval of the settlement took place on August 25, 2021 and the settlement was approved for $ 2.9 million which was paid in the third quarter of 2021, resulting in a $ 0.1 million adjustment to the Company’s litigation accrual. NOTE O: LEASES The Company has operating leases for certain offices and certain equipment. These leases have remaining terms that range from less than one year to 12 years . Options to extend the leases range from a single extension option of one year to multiple extension options for up to 40 years . Certain agreements include an option to terminate the lease within one year . 119 Table of Contents The components of lease expense are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 ​ 2021 ​ 2020 Operating lease cost ​ $ 8,568 ​ $ 8,397 ​ $ 9,000 Variable lease cost ​ 108 ​ ​ 50 ​ ​ 53 Short-term lease cost (1) ​ 65 ​ ​ 148 ​ ​ 369 Total lease cost ​ $ 8,741 ​ $ 8,595 ​ $ 9,422 ​ (1) Short-term lease cost includes the cost of leases with terms of twelve months or less, excluding leases with terms of one month or less. Supplemental cash flow information related to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ Operating cash outflows for operating leases ​ $ 8,402 ​ $ 8,203 ​ ​ ​ ​ ​ ​ ​ Right-of-use assets obtained in exchange for lease obligations: ​ ​ ​ ​ ​ Operating leases ​ 6,758 ​ ​ 5,344 ​ Supplemental balance sheet information related to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted, except lease term and discount rate) 2022 2021 ​ Operating leases ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 30,069 ​ $ 31,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease liabilities ​ 31,091 ​ ​ 32,833 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term ​ ​ ​ ​ ​ ​ Operating leases ​ 4.9 years ​ ​ 5.4 years ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average discount rate ​ ​ ​ ​ ​ ​ Operating leases ​ 2.89 % ​ 2.62 % ​ Maturities of lease liabilities as of December 31, 2022 are as follows: ​ ​ ​ ​ ​ (000’s omitted) Operating Leases 2023 ​ $ 8,995 2024 ​ 7,579 2025 ​ 5,992 2026 ​ 4,180 2027 ​ 2,547 Thereafter ​ 4,333 Total lease payments ​ 33,626 Less imputed interest ​ ( 2,535 ) Total ​ $ 31,091 ​ 120 Table of Contents Maturities of lease liabilities as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ (000’s omitted) Operating Leases 2022 ​ $ 8,729 2023 ​ 7,640 2024 ​ 5,920 2025 ​ 4,401 2026 ​ 3,062 Thereafter ​ 5,846 Total lease payments ​ 35,598 Less imputed interest ​ ( 2,765 ) Total ​ $ 32,833 ​ Included in the Company’s operating leases are related party leases where BPAS-APS and OneGroup, subsidiaries of the Company, lease office space from 706 North Clinton, LLC (“706 North Clinton”), an entity the Company holds a 50 % membership interest in through its subsidiary OPFC II. As of December 31, 2022, the operating lease right-of-use assets and operating lease liabilities associated with these related party leases total $ 3.6 million and $ 3.6 million, respectively. As of December 31, 2021, the operating lease right-of-use assets and operating lease liabilities associated with these related party leases total $ 4.0 million and $ 4.1 million, respectively. As of December 31, 2022, the weighted average remaining lease term and weighted average discount rate for the Company’s related party leases are 7.0 years and 3.68 %, respectively. As of December 31, 2021, the weighted average remaining lease term and weighted average discount rate for the Company’s related party leases are 8.0 years and 3.68 %, respectively. The maturities of the Company’s related party lease liabilities as of December 31, 2022 are as follows: ​ ​ ​ ​ ​ (000’s omitted) 706 North Clinton, LLC 2023 ​ $ 591 2024 ​ 591 2025 ​ 605 2026 ​ 615 2027 ​ 506 Thereafter ​ 1,221 Total lease payments ​ 4,129 Less imputed interest ​ ( 493 ) Total ​ $ 3,636 ​ The maturities of the Company’s related party lease liabilities as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ (000’s omitted) ​ 706 North Clinton, LLC 2022 $ 591 2023 ​ 591 2024 ​ ​ 591 2025 ​ ​ 605 2026 ​ 614 Thereafter ​ 1,727 Total lease payments ​ 4,719 Less imputed interest ​ ( 633 ) Total ​ $ 4,086 ​ As of December 31, 2022, the Company has four additional operating leases for office spaces that have not yet commenced with a weighted average lease term of 11.9 years. Upon commencements, lease right-of-use assets and lease liabilities of approximately $ 11.5 million will be recorded in the consolidated statements of condition. ​ ​ 121 Table of Contents NOTE P: REGULATORY MATTERS The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Management believes, as of December 31, 2022, that the Company and Bank meet all applicable capital adequacy requirements. The Company and the Bank are required to maintain a “capital conservation buffer,” composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios. The required capital conservation buffer is 2.50 % for both 2022 and 2021. Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer in 2022 and 2021, the Company and the Bank must maintain: (i) Common equity Tier 1 capital to total risk-weighted assets of at least 7.0 %, (ii) Tier 1 capital to total risk-weighted assets of at least 8.5 %, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of at least 10.5 %. As of December 31, 2022 and 2021, the amounts, ratios and requirements for the Company are presented below. As of December 31, 2022, the OCC categorized the Company and Bank as “well capitalized” under the regulatory framework for prompt corrective action. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For capital adequacy ​ To be well-capitalized ​ ​ ​ ​ ​ ​ ​ For capital adequacy ​ purposes plus Capital ​ under prompt ​ ​ Actual ​ purposes ​ Conservation Buffer ​ corrective action (000’s omitted) Amount Ratio Amount Ratio Amount Ratio Amount Ratio Community Bank System, Inc.: ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ Tier 1 Leverage ratio ​ $ 1,381,598 8.79 % $ 628,485 4.00 % ​ ​ ​ ​ ​ $ 785,606 5.00 % Tier 1 risk-based capital ​ 1,381,598 15.71 % 527,695 6.00 % $ 747,568 ​ 8.50 % ​ 703,593 8.00 % Total risk-based capital ​ 1,442,529 16.40 % 703,593 8.00 % 923,466 ​ 10.50 % ​ 879,491 10.00 % Common equity tier 1 capital ​ 1,381,439 15.71 % 395,771 4.50 % 615,644 ​ 7.00 % ​ 571,669 6.50 % 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Leverage ratio ​ $ 1,331,368 9.09 % $ 585,594 4.00 % ​ ​ ​ ​ ​ $ 731,993 5.00 % Tier 1 risk-based capital ​ 1,331,368 18.60 % 429,559 6.00 % $ 608,542 ​ 8.50 % ​ 572,746 8.00 % Total risk-based capital ​ 1,380,458 19.28 % 572,746 8.00 % 751,729 ​ 10.50 % ​ 715,932 10.00 % Common equity tier 1 capital ​ 1,331,259 18.60 % 322,169 4.50 % 501,152 ​ 7.00 % ​ 465,356 6.50 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Community Bank, N.A.: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Leverage ratio ​ $ 1,122,639 7.26 % $ 618,874 4.00 % ​ ​ ​ ​ ​ $ 773,593 5.00 % Tier 1 risk-based capital ​ 1,122,639 12.86 % 523,733 6.00 % $ 741,955 ​ 8.50 % ​ 698,311 8.00 % Total risk-based capital ​ 1,183,570 13.56 % 698,311 8.00 % 916,533 ​ 10.50 % ​ 872,889 10.00 % Common equity tier 1 capital ​ 1,122,480 12.86 % 392,800 4.50 % 611,022 ​ 7.00 % ​ 567,378 6.50 % 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Leverage ratio ​ $ 1,058,091 7.26 % $ 582,631 4.00 % ​ ​ ​ ​ ​ $ 728,289 5.00 % Tier 1 risk-based capital ​ 1,058,091 14.92 % 425,393 6.00 % $ 602,640 ​ 8.50 % ​ 567,190 8.00 % Total risk-based capital ​ 1,107,181 15.62 % 567,190 8.00 % 744,437 ​ 10.50 % ​ 708,988 10.00 % Common equity tier 1 capital ​ 1,057,982 14.92 % 319,045 4.50 % 496,292 ​ 7.00 % ​ 460,842 6.50 % ​ ​ ​ 122 Table of Contents NOTE Q: PARENT COMPANY STATEMENTS The condensed statements of condition of the parent company, Community Bank System, Inc., at December 31 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (000's omitted) 2022 2021 Assets: ​ ​ Cash and cash equivalents ​ $ 160,045 ​ $ 154,374 Investment securities ​ 7,881 ​ 8,679 Investment in and advances to: ​ ​ ​ ​ Bank subsidiary ​ 1,194,314 ​ 1,721,520 Non-bank subsidiaries ​ 207,172 ​ 232,096 Other assets ​ 17,106 ​ 18,462 Total assets ​ $ 1,586,518 ​ $ 2,135,131 ​ ​ ​ ​ ​ ​ ​ Liabilities and shareholders' equity: ​ ​ ​ ​ Accrued interest and other liabilities ​ $ 31,564 ​ $ 31,047 Borrowings ​ 3,249 ​ 3,277 Shareholders' equity ​ 1,551,705 ​ 2,100,807 Total liabilities and shareholders' equity ​ $ 1,586,518 ​ $ 2,135,131 ​ The condensed statements of income of the parent company for the years ended December 31 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000's omitted) 2022 2021 2020 Revenues: ​ ​ ​ Dividends from subsidiaries: ​ ​ ​ Bank subsidiary ​ $ 53,000 ​ $ 125,000 ​ $ 105,000 Non-bank subsidiaries ​ 55,000 ​ 14,000 ​ 13,500 Interest and dividends on investments ​ 342 ​ 245 ​ 168 Total revenues ​ 108,342 ​ 139,245 ​ 118,668 Expenses: ​ ​ ​ ​ ​ ​ Interest on borrowings ​ 153 ​ 446 ​ 2,546 Acquisition expenses ​ 0 ​ 0 ​ 450 Gain on debt extinguishment ​ 0 ​ 0 ​ ( 421 ) Other expenses ​ 6,091 ​ 5,717 ​ 4,945 Total expenses ​ 6,244 ​ 6,163 ​ 7,520 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before tax benefit and equity in undistributed net income of subsidiaries ​ 102,098 ​ 133,082 ​ 111,148 Income tax benefit ​ 2,942 ​ 3,964 ​ 3,739 Income before equity in undistributed net income of subsidiaries ​ 105,040 ​ 137,046 ​ 114,887 Equity in undistributed net income of subsidiaries ​ 83,041 ​ 52,648 ​ 49,789 Net income ​ $ 188,081 ​ $ 189,694 ​ $ 164,676 Other comprehensive (loss) income, net of tax: ​ ​ ​ ​ ​ ​ Changes in other comprehensive (loss) income related to pension and other post retirement obligations ​ ( 15,831 ) ​ 13,403 ​ 6,009 Changes in other comprehensive (loss) income related to unrealized (losses) gains on investment securities ​ ( 619,981 ) ​ ( 126,107 ) ​ 66,294 Other comprehensive (loss) income ​ ( 635,812 ) ​ ( 112,704 ) ​ 72,303 Comprehensive (loss) income ​ $ ( 447,731 ) ​ $ 76,990 ​ $ 236,979 ​ 123 Table of Contents The statements of cash flows of the parent company for the years ended December 31 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000's omitted) 2022 2021 2020 Operating activities: ​ ​ ​ Net income ​ $ 188,081 ​ $ 189,694 ​ $ 164,676 Adjustments to reconcile net income to net cash provided by operating activities ​ ​ ​ ​ ​ ​ Equity in undistributed net income of subsidiaries ​ ( 83,041 ) ​ ( 52,648 ) ​ ( 49,789 ) Net change in other assets and other liabilities ​ 2,155 ​ ( 3,050 ) ​ 1,740 Net cash provided by operating activities ​ 107,195 ​ 133,996 ​ 116,627 Investing activities: ​ ​ ​ ​ ​ ​ Purchases of investment securities ​ ​ ( 175 ) ​ ​ ( 5,173 ) ​ ​ ( 3,000 ) Cash paid for acquisitions, net of cash acquired of $ 0 , $ 0 , and $ 448 , respectively ​ 0 ​ 0 ​ ( 20,892 ) (Capital contributions to)/Return of capital from ​ 0 ​ ( 12,918 ) ​ 2 Net cash used in investing activities ​ ( 175 ) ​ ( 18,091 ) ​ ( 23,890 ) Financing activities: ​ ​ ​ ​ ​ ​ Repayment of advances from subsidiaries ​ ( 506 ) ​ ( 482 ) ​ ( 482 ) Repayment of borrowings ​ 0 ​ ( 77,320 ) ​ ( 12,062 ) Issuance of common stock ​ 8,922 ​ 16,155 ​ 22,211 Purchase of treasury stock ​ ( 16,614 ) ​ ( 5,106 ) ​ ( 271 ) Sale of treasury stock ​ 0 ​ 0 ​ 85 Increase in deferred compensation arrangements ​ 236 ​ 252 ​ 271 Cash dividends paid ​ ( 93,387 ) ​ ( 91,051 ) ​ ( 87,131 ) Net cash used in financing activities ​ ( 101,349 ) ​ ( 157,552 ) ​ ( 77,379 ) Change in cash and cash equivalents ​ 5,671 ​ ( 41,647 ) ​ 15,358 Cash and cash equivalents at beginning of year ​ 154,374 ​ 196,021 ​ 180,663 Cash and cash equivalents at end of year ​ $ 160,045 ​ $ 154,374 ​ $ 196,021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ ​ Cash paid for interest ​ $ 180 ​ $ 560 ​ $ 2,555 Supplemental disclosures of noncash financing activities: ​ ​ ​ Dividends declared and unpaid ​ $ 23,763 ​ $ 23,235 ​ $ 22,695 Advances from subsidiaries ​ 506 ​ 482 ​ 932 Common stock issued for acquisition ​ 0 ​ 0 ​ 76,942 ​ ​ ​ NOTE R: 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. 124 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) Level 1 Level 2 Level 3 Value Available-for-sale investment securities: ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 3,178,189 ​ $ 65,348 ​ $ 0 ​ $ 3,243,537 Obligations of state and political subdivisions ​ 0 ​ 504,297 ​ 0 ​ 504,297 Government agency mortgage-backed securities ​ 0 ​ 384,633 ​ 0 ​ 384,633 Corporate debt securities ​ 0 ​ 7,114 ​ 0 ​ 7,114 Government agency collateralized mortgage obligations ​ 0 ​ 12,270 ​ 0 ​ 12,270 Total available-for-sale investment securities ​ 3,178,189 ​ 973,662 ​ 0 ​ 4,151,851 Equity securities ​ 419 ​ 0 ​ 0 ​ 419 Commitments to originate real estate loans for sale ​ ​ 0 ​ ​ 0 ​ ​ 5 ​ ​ 5 Forward sales commitments ​ ​ 0 ​ ​ 5 ​ ​ 0 ​ ​ 5 Interest rate swap agreements asset ​ 0 ​ 1 ​ 0 ​ 1 Interest rate swap agreements liability ​ 0 ​ ( 1 ) ​ 0 ​ ( 1 ) Total ​ $ 3,178,608 ​ $ 973,667 ​ $ 5 ​ $ 4,152,280 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, interest rate swap yield curves, market prepayment speeds, credit information, market spreads, and security’s terms and conditions, are observable. See Note C for further disclosure of the fair value of investment securities. 125 Table of Contents ● 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 swap agreements – 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. 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ 503 503 ​ 0 ​ 0 ​ 718 718 Mortgage servicing rights ​ 0 ​ 0 ​ 1,169 1,169 ​ 0 ​ 0 ​ 810 810 Contingent consideration ​ ​ 0 ​ ​ 0 ​ ​ ( 2,800 ) ​ ​ ( 2,800 ) ​ ​ 0 ​ ​ 0 ​ ​ ( 3,100 ) ​ ​ ( 3,100 ) Total ​ $ 0 ​ $ 0 ​ $ ( 1,128 ) $ ( 1,128 ) ​ $ 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. 126 Table of Contents 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 estimated 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 9.0 % to 72.8 % at December 31, 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 $ 0.7 million at December 31, 2022. 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 an asset or 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. The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated. If so, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value of the goodwill over fair value of the goodwill. In such situations, the Company performs a discounted cash flow modeling technique that requires management to make estimates regarding the amount and timing of expected future cash flows of the assets and liabilities of the reporting unit that enable the Company to calculate the implied fair value of the goodwill. It also requires use of a discount rate that reflects the current return expectation of the market in relation to present risk-free interest rates, expected equity market premiums, peer volatility indicators and company-specific risk indicators. The Company did not recognize an impairment charge during 2022 or 2021. 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 as of December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant Significant Unobservable ​ ​ ​ ​ ​ Valuation ​ Unobservable ​ Input Range (000's omitted, except per loan data) ​ Fair Value ​ Technique ​ Inputs ​ (Weighted Average) Other real estate owned ​ $ 503 Fair value of collateral Estimated cost of disposal/market adjustment ​ 9.0 % - 72.8 % ( 35.7 %) ​ Commitments to originate real estate loans for sale ​ ​ 5 ​ Discounted cash flow ​ Embedded servicing value ​ ​ 1.0 % Mortgage servicing rights ​ 1,169 Discounted cash flow Weighted average constant prepayment rate ​ 2.9 % - 3.3 % ( 2.9 %) ​ ​ ​ ​ ​ ​ ​ Weighted average discount rate ​ 4.6 % - 4.9 % ( 4.9 %) ​ ​ ​ ​ ​ ​ ​ Adequate compensation ​ ​ $ 7 /loan ​ Contingent consideration ​ ​ ( 2,800 ) ​ Discounted cash flow ​ Discount rate ​ ​ 5.9 % - 6.2 % ( 6.1 %) ​ ​ ​ ​ ​ ​ ​ ​ Probability adjusted level of retained revenue ​ ​ $ 3.1 million - $ 5.1 million ​ ​ 127 Table of Contents The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant Significant Unobservable ​ ​ ​ ​ ​ Valuation ​ Unobservable ​ Input Range (000's omitted, except per loan data) ​ Fair Value ​ Technique ​ 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 other real estate owned 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. 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 December 31, 2022 and December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ Carrying ​ Carrying ​ (000’s omitted) ​ Value ​ Fair Value ​ Value ​ Fair Value Financial assets: ​ ​ ​ ​ Net loans ​ $ 8,748,335 ​ $ 8,696,185 ​ $ 7,323,770 ​ $ 7,523,024 Held-to-maturity securities ​ ​ 1,079,695 ​ ​ 1,034,795 ​ ​ 0 ​ ​ 0 Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ 13,012,308 ​ 12,981,487 ​ 12,911,168 ​ 12,911,197 Overnight borrowings ​ 768,400 ​ 768,400 ​ 0 ​ 0 Securities sold under agreement to repurchase, short-term ​ 346,652 ​ 346,652 ​ 324,720 ​ 324,720 Other Federal Home Loan Bank borrowings ​ 19,474 ​ 19,377 ​ 1,888 ​ 1,907 Subordinated notes payable ​ 3,249 ​ 3,249 ​ 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. Held-to-maturity securities have been classified as a Level 1 valuation. The fair values of held-to-maturity 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. 128 Table of Contents 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 and subordinated notes payable have been classified as a Level 2 valuation. The fair value of overnight borrowings and securities sold under agreement to repurchase, short-term, is the amount payable on demand at the reporting date. Fair values for other Federal Home Loan Bank borrowings and subordinated notes payable are estimated using discounted cash flows and interest rates currently being offered on similar securities. The difference between the carrying values of subordinated notes payable, 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. ​ NOTE S: VARIABLE INTEREST ENTITIES The Company’s wholly-owned subsidiary CCT IV was a VIE for which the Company was not the primary beneficiary. Accordingly, the accounts of this entity were not included in the Company’s consolidated financial statements. On March 15, 2021, the Company exercised its right to redeem all of the CCT IV debentures and associated preferred securities. See further information regarding CCT IV in Note H: Borrowings. In connection with the Company’s acquisition of Oneida Financial Corp, the Company acquired OPFC II which holds a 50 % membership interest in 706 North Clinton, an entity formed for the purpose of acquiring and rehabilitating real property. The real property held by 706 North Clinton is principally occupied by subsidiaries of the Company. The Company analyzed the operating agreement and capital structure of 706 North Clinton and determined that it was the primary beneficiary and therefore should consolidate 706 North Clinton in its financial statements. This conclusion was based on the determination that the Company has a de facto agency relationship because of the financing arrangement between the other member of 706 North Clinton and the Bank which provides OPFC II with both the power to direct the activities of 706 North Clinton and the obligation to absorb any losses of 706 North Clinton. The carrying amount of the assets and liabilities of 706 North Clinton and the classification of these assets and liabilities in the Company’s consolidated statements of condition at December 31 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) 2022 2021 Cash and cash equivalents ​ $ 226 ​ $ 198 Premises and equipment, net ​ 5,455 ​ 5,618 Other assets ​ 65 ​ 57 Total assets ​ $ 5,746 ​ $ 5,873 Accrued interest and other liabilities / Total liabilities ​ $ 0 ​ $ 0 ​ In addition to the assets and liabilities of 706 North Clinton, the minority interest in 706 North Clinton of $ 2.9 million at December 31, 2022 is included in the Company’s consolidated statements of condition. The creditors of 706 North Clinton do not have a claim on the general assets of the Company. The Company’s maximum loss exposure net of minority interest in 706 North Clinton is approximately $ 4.0 million as of December 31, 2022, including a $ 1.1 million loss exposure related to the financing agreement between the other member of 706 North Clinton and the Bank. ​ 129 Table of Contents NOTE T: 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. 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 operating subsidiaries of BPAS, BPA, BPAS-APS, BPAS Trust Company of Puerto Rico, NRS, GTC, HB&T, and FBD, 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 CISI, Carta Group and Wealth Partners, as well as asset management provided by Nottingham; and (b) full-service insurance, risk management and employee benefit services provided by OneGroup. 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). 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 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 420,273 ​ $ 319 ​ $ 38 ​ $ 0 ​ $ 420,630 Provision for credit losses ​ ​ 14,773 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 14,773 Noninterest revenue ​ ​ 75,480 ​ ​ 117,956 ​ ​ 73,126 ​ ​ ( 7,837 ) ​ ​ 258,725 Amortization of intangible assets ​ ​ 4,753 ​ ​ 6,607 ​ ​ 3,854 ​ ​ 0 ​ ​ 15,214 Acquisition expenses ​ ​ 5,018 ​ ​ 3 ​ ​ 0 ​ ​ 0 ​ ​ 5,021 Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ ( 500 ) ​ ​ 200 ​ ​ 0 ​ ​ ( 300 ) Other operating expenses ​ ​ 283,942 ​ ​ 71,466 ​ ​ 56,762 ​ ​ ( 7,837 ) ​ ​ 404,333 Income before income taxes ​ $ 187,267 ​ $ 40,699 ​ $ 12,348 ​ $ 0 ​ $ 240,314 Assets ​ $ 15,616,885 ​ $ 226,135 ​ $ 96,924 ​ $ ( 104,293 ) ​ $ 15,835,651 Goodwill ​ $ 732,088 ​ $ 85,384 ​ $ 24,369 ​ $ 0 ​ $ 841,841 Core deposit intangibles & Other intangibles ​ $ 12,304 ​ $ 33,411 ​ $ 15,281 ​ $ 0 ​ $ 60,996 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 374,078 ​ $ 293 ​ $ 41 ​ $ 0 ​ $ 374,412 Provision for credit losses ​ ( 8,839 ) ​ 0 ​ 0 ​ 0 ​ ( 8,839 ) Noninterest revenue ​ 67,910 ​ 116,621 ​ 68,834 ​ ( 7,130 ) ​ 246,235 Amortization of intangible assets ​ 4,744 ​ 6,033 ​ 3,274 ​ 0 ​ 14,051 Acquisition expenses ​ 638 ​ 36 ​ 27 ​ 0 ​ 701 Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 200 ​ ​ 0 ​ ​ 0 ​ ​ 200 Other operating expenses ​ 265,525 ​ 64,423 ​ 50,368 ​ ( 7,130 ) ​ 373,186 Income before income taxes ​ $ 179,920 ​ $ 46,222 ​ $ 15,206 ​ $ 0 ​ $ 241,348 Assets ​ $ 15,325,732 ​ $ 257,879 ​ $ 97,391 ​ $ ( 128,345 ) ​ $ 15,552,657 Goodwill ​ $ 689,868 ​ $ 85,321 ​ $ 23,920 ​ $ 0 ​ $ 799,109 Core deposit intangibles & Other intangibles ​ $ 9,087 ​ $ 40,018 ​ $ 16,121 ​ $ 0 ​ $ 65,226 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 367,237 ​ $ 943 ​ $ 223 ​ $ 0 ​ $ 368,403 Provision for credit losses ​ 14,212 ​ 0 ​ 0 ​ 0 ​ 14,212 Noninterest revenue ​ 69,578 ​ 103,456 ​ 61,599 ​ ( 6,214 ) ​ 228,419 Amortization of intangible assets ​ 5,515 ​ 5,724 ​ 3,058 ​ 0 ​ 14,297 Acquisition expenses ​ 4,933 ​ 0 ​ 0 ​ 0 ​ 4,933 Other operating expenses ​ 255,955 ​ 60,709 ​ 46,854 ​ ( 6,214 ) ​ 357,304 Income before income taxes ​ $ 156,200 ​ $ 37,966 ​ $ 11,910 ​ $ 0 ​ $ 206,076 Assets ​ $ 13,762,325 ​ $ 217,780 ​ $ 82,849 ​ $ ( 131,860 ) ​ $ 13,931,094 Goodwill ​ $ 690,121 ​ $ 83,275 ​ $ 20,312 ​ $ 0 ​ $ 793,708 Core deposit intangibles & Other intangibles ​ $ 13,831 ​ $ 32,051 ​ $ 7,058 ​ $ 0 ​ $ 52,940 ​ ​ ​ ​ 130 Table of Contents NOTE U: SUBSEQUENT EVENTS Companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued. They must recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities do not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. Such events and transactions were evaluated through the date these consolidated financial statements were available to be issued and the Company determined such an event had occurred. In the first quarter of 2023, the Company executed the sale of $ 786.1 million in book value of its lower-yielding available-for-sale debt securities as part of a balance sheet repositioning. The sale resulted in a pre-tax realized loss of approximately $ 52.3 million, and the proceeds of $ 733.8 million were redeployed towards paying off existing wholesale borrowings. The balance sheet repositioning is a non-recognized subsequent event and will be reflected in the first quarter 2023 consolidated financial statements. ​ 131 Table of Contents Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022. The consolidated financial statements of the Company have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm that was engaged to express an opinion as to the fairness of presentation of such financial statements. PricewaterhouseCoopers LLP was also engaged to audit the effectiveness of the Company’s internal control over financial reporting. The report of PricewaterhouseCoopers LLP follows this report. Community Bank System, Inc. By: /s/ Mark E. Tryniski Mark E. Tryniski, President, Chief Executive Officer and Director By: /s/ Joseph E. Sutaris Joseph E. Sutaris, Treasurer and Chief Financial Officer ​ 132 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Community Bank System, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of condition of Community Bank System, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note D to the consolidated financial statements, the Company changed the manner in which it accounts for the allowance for credit losses as of January 1, 2020. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 133 Table of Contents Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses – Qualitative Macroeconomic Adjustment for Consumer Mortgages As described in Notes A and D to the consolidated financial statements, management estimates the allowance for credit losses using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. As of December 31, 2022, the allowance for credit losses for consumer mortgages was $14.3 million on consumer mortgages of $3.0 billion. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, acquired loans, delinquency level, risk ratings or term of loans as well as changes in macroeconomic conditions, such as changes in unemployment rates, property values such as home prices, commercial real estate prices and automobile prices, gross domestic product, and other relevant factors. For qualitative macroeconomic adjustments, management uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios. The principal considerations for our determination that performing procedures relating to the qualitative macroeconomic adjustment to the allowance for credit losses for consumer mortgages is a critical audit matter are (i) the significant judgment by management in determining the macroeconomic qualitative adjustment for consumer mortgages, which led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating related evidence; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s allowance for credit losses estimation process, including controls over the qualitative macroeconomic adjustment for consumer mortgages. These procedures also included, among others, testing management’s process for determining the qualitative macroeconomic adjustment to the allowance for credit losses for consumer mortgages, including evaluating the appropriateness of management’s methodology and testing data used in the qualitative macroeconomic adjustment for consumer mortgages. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the qualitative macroeconomic adjustments. /s/ PricewaterhouseCoopers LLP Buffalo, New York March 1, 2023 ​ We have served as the Company’s auditor since 1984. ​ 134 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None ​