What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 246 added, 377 removed, 625 unchanged (50% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30,

Cash and cash equivalents

Available-for-sale investment securities, includes pledged securities that can be sold or repledged of $ 640,396 and $ 466,902 , respectively (cost of $ 3,871,881 and $ 4,675,474 , respectively)

Held-to-maturity securities (fair value of $ 1,083,330 and $ 1,034,795 , respectively)

Equity and other securities (cost of $ 53,595 and $ 82,424 , respectively)

14 unchanged sentences

Total liabilities

Commitments and contingencies (See Note J)

Commitments and contingencies (See Note I)

Shareholders’ equity:

5 unchanged sentences

Accumulated other comprehensive loss

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

Treasury stock, at cost ( 634,618 shares, including 117,103 shares held by deferred compensation arrangements at March 31, 2023 and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022)

Deferred compensation arrangements ( 117,103 and 135,437 shares, respectively)

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Interest income:

7 unchanged sentences

Interest on subordinated notes payable

Interest on subordinated debt held by unconsolidated subsidiary trusts

Total interest expense

9 unchanged sentences

Wealth management services

Unrealized (loss) gain on equity securities

Loss on sales of investment securities

Gain on debt extinguishment

Unrealized gain on equity securities

Total noninterest revenues

1 unchanged sentence

Salaries and employee benefits

Occupancy and equipment

Data processing and communications

Occupancy and equipment

Amortization of intangible assets

1 unchanged sentence

Business development and marketing

Litigation accrual

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other expenses

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Pension and other post retirement obligations:

Amortization of actuarial losses included in net periodic pension cost, gross

Amortization of actuarial losses included in net periodic pension cost, net

Amortization of actuarial (gains) losses included in net periodic pension cost, gross

Amortization of actuarial (gains) losses included in net periodic pension cost, net

Amortization of prior service cost included in net periodic pension cost, gross

Amortization of prior service cost included in net periodic pension cost, net

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

Unrealized losses on available-for-sale securities:

Net unrealized losses arising during period, gross

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

Other comprehensive loss, net of tax

Comprehensive (loss) income

September 30,

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

Unrealized gains (losses) on investment securities:

Net unrealized holding gains (losses) on investment securities, gross

Net unrealized holding gains (losses) on investment securities, net

Reclassification adjustment for net losses included in net income, gross

Reclassification adjustment for net losses included in net income, net

Other comprehensive gain (loss) related to unrealized gains (losses) on investment securities, net of taxes

Other comprehensive income (loss), net of tax

Comprehensive income (loss)

Accumulated Other Comprehensive Loss By Component:

1 unchanged sentence

Net unrealized loss for pension and other post-retirement obligations

Unrealized loss on available-for-sale securities

Net unrealized loss on available-for-sale securities

Unrealized loss on investment securities

Net unrealized loss on investment securities

Accumulated other comprehensive loss

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended September 30, 2022 and 2021

(In Thousands, Except Share Data)

Comprehensive

Balance at June 30, 2022

Other comprehensive loss, net of tax

Dividends declared:

Common, $ 0.44 per share

Common stock activity under employee stock plans

Stock-based compensation

Treasury stock purchased for benefit plans, net

Balance at September 30, 2022

Balance at June 30, 2021

Other comprehensive loss, net of tax

Dividends declared:

Common, $ 0.43 per share

Common stock activity under employee stock plans

Stock-based compensation

Treasury stock purchased for benefit plans, net

Balance at September 30, 2021

See accompanying notes to consolidated financial statements (unaudited).

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Nine months ended September 30, 2022 and 2021

Three months ended March 31, 2023 and 2022

(In Thousands, Except Share Data)

Comprehensive

(Loss) Income

Balance at December 31, 2022

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Dividends declared:

4 unchanged sentences

Treasury stock purchased

Treasury stock purchased for benefit plans, net

Balance at September 30, 2022

Treasury stock issued to benefit plans, net

Balance at March 31, 2023

Balance at December 31, 2021

5 unchanged sentences

Distribution of stock under deferred compensation arrangements

Treasury stock purchased for benefit plans, net

Balance at September 30, 2021

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at March 31, 2022

See accompanying notes to consolidated financial statements (unaudited).

2 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities:

1 unchanged sentence

Amortization of intangible assets

Net accretion on securities, loans and borrowings

Net amortization (accretion) on securities, loans and borrowings

Stock-based compensation

Gain on debt extinguishment

Provision for credit losses

Amortization of mortgage servicing rights

Unrealized loss (gain) on equity securities

Loss on sales of investment securities

Unrealized gain on equity securities

Income from bank-owned life insurance policies

Net gain on sale of assets

Change in other assets and other liabilities

Change in other assets and liabilities

Net cash provided by operating activities

1 unchanged sentence

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

Proceeds from maturities and redemptions of equity and other securities

Proceeds from maturities, calls, and paydowns of held-to-maturity investment securities

Proceeds from maturities and redemptions of equity and other investment securities

Proceeds from sales of available-for-sale investment securities

Purchases of available-for-sale investment securities

( 1,256,723 )

( 1,284,544 )

Purchases of held-to-maturity investment securities

Purchases of equity and other securities

Net (increase) decrease in loans

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

Net increase in loans

Cash paid for acquisitions, net of cash acquired of $ 0 , and $ 0 , respectively

Proceeds from sales of premises and equipment, net

Purchases of premises and equipment, net

Real estate tax credit investments

Net cash used in investing activities

Real estate limited partnership investments

Net cash provided by (used in) investing activities

( 1,261,114 )

1 unchanged sentence

Net increase in deposits

Net increase in overnight borrowings

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

Payments on other Federal Home Loan Bank borrowings

Payments on subordinated debt held by unconsolidated subsidiary trusts

Net decrease in overnight borrowings

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

Net decrease in other Federal Home Loan Bank borrowings

Redemption of subordinated notes payable

Proceeds from the issuance of common stock

3 unchanged sentences

Withholding taxes paid on share-based compensation

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Change in cash and cash equivalents

( 1,627,673 )

Cash and cash equivalents at beginning of period

13 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2022

MARCH 31, 2023

BASIS OF PRESENTATION

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

The interim financial data as of and for the three months ended March 31, 2023 is unaudited;

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

2 unchanged sentences

The Company’s unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023.

Subsequent Period Acquisition

On May 1, 2023, the Company, through its subsidiary OneGroup NY, Inc.

(“OneGroup”), completed the acquisition of certain assets of Hyde Park Insurance Services, Inc., an insurance agency headquartered in Tampa, Florida for $ 4.3 million in cash.

The effects of the acquired assets will be included in the 2023 consolidated financial statements beginning in the second quarter of 2023.

Current and Prior Period Acquisitions

On May 13, 2022, the Company completed the acquisition of Elmira Savings Bank (“Elmira”), a New York State chartered savings bank headquartered in Elmira, New York, for $ 82.2 million in cash.

The acquisition enhances the Company’s presence in five counties in New York’s Southern Tier and Finger Lakes regions.

On March 1, 2023, the Company completed the acquisition of certain assets of Axiom Realty Group, which includes Axiom Capital Corp., Axiom Realty Management, LLC and Axiom Realty Advisors, LLC (collectively referred to as “Axiom”) for $ 1.8 million in cash.

The Company recorded a $ 0.5 million customer list intangible and recognized $ 1.3 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 $ 0.2 million were included in the consolidated statement of income for the three months ended March 31, 2023.

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 statement of income for the three months ended March 31, 2023.

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 enhanced 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 $ 583.7 million of identifiable assets, including $ 437.0 million of loans, $ 11.3 million of investment securities, and $ 8.0 million of core deposit intangibles, as well as $ 522.3 million of deposits.

Preliminary goodwill of $ 45.8 million was recognized as a result of the merger.

Goodwill of $ 41.9 million was recognized as a result of the merger.

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

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

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

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

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

(“OneGroup”), completed acquisitions of certain assets of three insurance agencies for an aggregate amount of $ 2.5 million in cash.

Revenues of approximately $ 4.7 million and direct expenses of approximately $ 1.1 million from the Elmira branch network, which may not include certain shared expenses, were included in the consolidated statement of income for the three months ended March 31, 2023.

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

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

(“TGA”), a specialty-lines insurance broker based in the Boston, Massachusetts area, for $ 11.6 million in cash plus contingent consideration with a fair value at acquisition date of $ 1.5 million.

The Company recorded a $ 10.9 million customer list intangible asset and $ 2.2 million of goodwill in conjunction with the acquisition.

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

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

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

Amounts are payable in two payments, the first of which is two years after the acquisition date, and the second is three years after the acquisition date.

The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $ 3.4 million.

The fair value of the contingent consideration recognized on the acquisition date of $ 1.5 million was estimated by applying the income approach, a measure that is based on significant Level 3 inputs not readily observable in the market.

Key assumptions at the date of acquisition include (1) a discount rate range of 0.82 % to 1.09 % applied to present value the payments, and (2) probability adjusted level of retained revenue between $ 2.3 million and $ 3.8 million.

The contingent consideration related to the TGA acquisition was revalued at June 30, 2022.

The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $ 3.4 million.

Key assumptions include (1) a discount rate range of 4.44 % to 4.55 % applied to present value the payments, and (2) probability adjusted level of retained revenue between $ 3.3 million and $ 3.7 million.

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

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

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

(“BPA”), completed its acquisition of Fringe Benefits Design of Minnesota, Inc.

(“FBD”) for $ 15.4 million in cash plus contingent consideration with a fair value at acquisition date of $ 1.4 million.

The Company recorded a $ 14.0 million customer list intangible asset and $ 2.1 million of goodwill in conjunction with the acquisition.

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

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

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

Amounts are payable three years after the acquisition date.

The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $ 2.7 million.

The fair value of the contingent consideration recognized on the acquisition date of $ 1.4 million was estimated by applying the income approach;

a measure that is based on significant Level 3 inputs not readily observable in the market.

Key assumptions at the date of acquisition include (1) a discount rate of 1.05 % applied to present value the payment, and (2) probability adjusted level of retained revenue between $ 5.6 million and $ 5.8 million.

The contingent consideration related to the FBD acquisition was revalued at June 30, 2022.

The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $ 2.7 million.

Key assumptions include (1) a discount rate of 4.51 % applied to present value the payment, and (2) probability adjusted level of retained revenue between $ 5.2 million and $ 5.4 million.

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

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

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

(“NuVantage”), an insurance agency headquartered in Melbourne, Florida.

The Company paid $ 2.9 million in cash and recorded a $ 1.4 million customer list intangible asset and $ 1.4 million of goodwill in conjunction with the acquisition.

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

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

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

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

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

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

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

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

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:

Included in the consolidated statements of income for the three months ended March 31, 2023 and 2022 are revenues of approximately $ 0.2 million and $ 0.3 million, respectively, and direct expenses of approximately $ 0.1 million in each of the three months ended March 31, 2023 and 2022.

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

Through the first quarter of 2023, the carrying amount of accrued interest and fees receivable, other assets and other liabilities associated with the Elmira acquisition was adjusted upon receipt of new information as a result of adjustments to employee benefits accruals and deferred income taxes.

The adjustments resulted in a net decrease to goodwill of $ 0.3 million.

The Elmira and Axiom acquisitions generally expanded the Company’s banking geographic presence in New York.

The OneGroup acquisitions generally expanded the Company’s nonbanking presence in New York and Florida.

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:

(000s omitted)

Consideration:

Contingent consideration

Total net consideration

Recognized amounts of identifiable assets acquired and liabilities assumed:

9 unchanged sentences

Total identifiable assets, net

(1) Includes amounts for OneGroup acquisition completed in 2023.

(2) Includes amounts for all OneGroup acquisitions completed in 2022.

The Company has acquired loans from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination (purchased credit deteriorated (“PCD”) loans).

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).

There were no investment securities acquired from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination.

8 unchanged sentences

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

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

The other intangibles related to the NuVantage acquisition and the OneGroup asset acquisitions completed in 2022 are being amortized using an accelerated method over their estimated useful of life of eight years for NuVantage and two of the 2022 OneGroup asset acquisitions, and ten years for the third 2022 OneGroup asset acquisition.

The other intangibles related to the TGA and FBD acquisitions are being amortized using an accelerated method over their estimated useful life of 13 years and 15 years , respectively.

Goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira acquisition, the All Other segment for the NuVantage and TGA acquisitions, and the Employee Benefit Services segment for the FBD acquisition.

Goodwill arising from the Elmira and FBD acquisitions is not deductible for tax purposes.

Goodwill arising from the NuVantage and TGA acquisitions is deductible for tax purposes.

The core deposit intangibles related to the Elmira acquisition and other intangibles related to three of the OneGroup acquisitions completed in 2022, the OneGroup acquisition completed in 2023, and the Axiom acquisition 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 goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira and Axiom acquisitions and the All Other segment for the OneGroup acquisition completed in 2023 and the JMD acquisition.

Goodwill arising from the Elmira acquisition is not deductible for tax purposes.

Goodwill arising from the Axiom acquisition, the OneGroup acquisition completed in 2023, and the JMD acquisition is deductible for tax purposes.

Direct costs related to the acquisitions were expensed as incurred.

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

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

Supplemental Pro Forma Financial Information

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

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

Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of the acquisition.

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

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

Pro Forma (Unaudited)

Three Months Ended

Nine Months Ended

(000’s omitted)

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Total revenue, net of interest expense

Merger and acquisition integration-related expenses were $ 0.1 million and $ 0.3 million during the three months ended March 31, 2023 and 2022, respectively, and have been separately stated in the consolidated statements of income.

ACCOUNTING POLICIES

6 unchanged sentences

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

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

As of March 31, 2023, $ 31.7 million of accounts receivable, including $ 9.2 million of unbilled fee revenue, and $ 1.8 million of unearned revenue, was recorded in the consolidated statements of condition.

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.

Premises and Equipment Held for Sale

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

Loan Modifications

The Company, in certain situations, will modify a loan with a borrower experiencing financial difficulty that results in a direct change in the timing or amount of contractual cash flows.

Applicable modifications include but are not limited to principal forgiveness, interest rate reduction, other-than-insignificant payment delay, term extension (other than administrative) or a combination thereof.

Principal forgiveness is defined as any contractual reduction in the amount of principal due without receiving payment or assets.

Interest rate reduction is defined as the change results in the borrower receiving a below market interest rate.

A delay in payment that is other-than-insignificant is determined by considering factors including the amount of the restructured payments relative to the unpaid principal or collateral value of the loan, as well as the timing of the restructured payment relative to the frequency of payments due under the debt, the debt’s original contract maturity and the debt’s original expected duration.

Generally, a delay in payment greater than 90 days in the last twelve months would be considered other-than-insignificant.

The Company considers several factors to assess whether a borrower is experiencing financial difficulty, including but not limited to payment default or expected payment default, bankruptcy of the borrower, substantial doubt whether the borrower will continue as a going concern and estimates or projections of the borrower’s financial condition that indicate that the borrower will be unable to service the loan in accordance with the contractual provisions of the existing agreement.

Following the adoption of ASU 2022-02 on January 1, 2023, the Company has established a policy to identify and disclose information required by FASB ASC 310-10-50 regarding modifications made to borrowers experiencing financial difficulty.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current period’s 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.

This new guidance is effective as of March 12, 2020 through December 31, 2022.

Adoption is permitted in any interim periods for which financial statements have not been issued.

The Company has established a working group that includes multiple functions to guide the transition from LIBOR to alternative reference rates.

The Company has identified all known LIBOR exposures, created a preliminary plan to address the exposures, and new originations either do not utilize LIBOR, or replacement rate language, provisions, and conventions have been specified.

The Company continues to evaluate its exposure to LIBOR and communicate with all stakeholders in order to facilitate the transition.

The Company adopted this guidance on January 1, 2022 and determined that this guidance does not have a material impact on the Company’s consolidated financial statements as the Company’s exposure to LIBOR-based loans and financial instruments is insignificant.

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205) , Financial Services-Depository and Lending (Topic 942) , and Financial Services-Investment Companies (Topic 946):

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10786 , Amendments to Financial Disclosures about Acquired and Disposed Businesses , and No.

33-10835 , Update of Statistical Disclosures for Bank and Savings and Loan Registrants .

This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses , and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants .

The amendments in this update are effective upon addition to the FASB Codification and the Company determined that this guidance does not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In March 2022, the FASB issued ASU 2022-02 , Financial Instruments-Credit Losses (Topic 326):

In March 2022, the Financial Accounting Standards Board (“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.

2 unchanged sentences

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 this guidance on January 1, 2023 on a prospective basis and while it resulted in expanded disclosures, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

INVESTMENT SECURITIES

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

September 30, 2022

The amortized cost and estimated fair value of investment securities as of March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023

December 31, 2022

6 unchanged sentences

Government agency collateralized mortgage obligations

Total available-for-sale investment portfolio

Total available-for-sale portfolio

Held-to-Maturity Portfolio:

Treasury and agency securities

Government agency mortgage-backed securities

Total held-to-maturity portfolio

Equity and Other Securities:

5 unchanged sentences

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

As of September 30, 2022

As of March 31, 2023

Less than 12 Months

8 unchanged sentences

Total available-for-sale investment portfolio

Equity and other Securities:

Equity securities, at fair value

Total equity and other securities

Held-to-Maturity Portfolio:

Treasury and agency securities

Government agency mortgage-backed securities

Total held-to-maturity portfolio

As of December 31, 2022

9 unchanged sentences

Total available-for-sale investment portfolio

The unrealized losses reported pertaining to securities issued by the U.S.

Held-to-Maturity Portfolio:

U.S Treasury and agency securities

Total held-to-maturity portfolio

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.

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

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

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

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 September 30, 2022 represents credit losses and no unrealized losses have been recognized in the provision for credit losses.

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

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

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

As such, management does not believe any individual unrealized loss as of March 31, 2023 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 March 31, 2023.

Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 12.3 million at March 31, 2023 and is excluded from the estimate of credit losses.

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 March 31, 2023 all securities in the held-to-maturity classification are U.S.

Treasury securities and government agency mortgage-backed 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, and these securities are guaranteed by the U.S.

Treasury securities and government agency mortgage-backed securities often receive the highest credit rating by rating agencies and the Company has concluded that the possibility of default is considered remote.

Treasury securities and government agency mortgage-backed 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 these 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 debt portfolio as of March 31, 2023.

Accrued interest receivable on held-to-maturity debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 2.8 million at March 31, 2023 and is excluded from the estimate of credit losses.

The Company has the intent and ability to hold the securities to maturity.

The amortized cost and estimated fair value of debt securities at March 31, 2023, by contractual maturity, are shown below.

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

Securities not due at a single maturity date, including government agency mortgage-backed securities and government agency collateralized mortgage obligations, are shown separately.

Held-to-Maturity

Available-for-Sale

6 unchanged sentences

Government agency collateralized mortgage obligations

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

Investment securities with a fair value of $ 3.75 billion and $ 2.18 billion at March 31, 2023 and December 31, 2022, respectively, were pledged to collateralize certain deposits and borrowings.

Securities pledged to collateralize certain deposits and borrowings included $ 640.4 million and $ 466.9 million of U.S.

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

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

Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at March 31, 2023 and December 31, 2022, respectively.

All securities sold under agreement to repurchase as of March 31, 2023 and December 31, 2022 have an overnight and continuous maturity.

During the first quarter of 2023, the Company sold $ 786.1 million in book value of available-for-sale U.S.

Treasury and agency securities, recognizing $ 52.3 million of gross realized losses.

The sales were completed in January and February 2023 as part of a strategic balance sheet repositioning and were unrelated to the negative developments in the banking industry that occurred in March 2023.

The proceeds from these sales of $ 733.8 million were redeployed entirely towards paying off existing overnight borrowings.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

September 30,

(000’s omitted)

6 unchanged sentences

Loans, net of allowance for credit losses

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

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of March 31, 2023:

90+ Days Past

13 unchanged sentences

Consumer direct

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

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2023 and 2022.

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

5 unchanged sentences

Special Mention

The condition of the borrower has deteriorated although the loan performs as agreed.

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.

The condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate and incur loss, if deficiencies are not corrected.

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.

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

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

Term Loans Amortized Cost Basis by Origination Year

The following tables show the amount of business lending loans by credit quality category at March 31, 2023 and December 31, 2022:

(000’s omitted)

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

March 31, 2023

Business lending:

1 unchanged sentence

Total business lending

Term Loans Amortized Cost Basis by Origination Year

Current period gross charge-offs

(000’s omitted)

Term Loans Amortized Cost Basis by Origination Year

December 31, 2022

2 unchanged sentences

Total business lending

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

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

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are monitored collectively on a monthly basis.

2 unchanged sentences

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

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

Term Loans Amortized Cost Basis by Origination Year

The following table details the balances in all other loan categories at March 31, 2023:

(000’s omitted)

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

March 31, 2023

Consumer mortgage:

4 unchanged sentences

Total consumer mortgage

Current period gross charge-offs

Consumer indirect:

1 unchanged sentence

Total consumer indirect

Current period gross charge-offs

Consumer direct:

1 unchanged sentence

Total consumer direct

Current period gross charge-offs

Nonperforming

Total home equity

Current period gross charge-offs

(1) FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination.

1 unchanged sentence

The following table details the balances in all other loan categories at December 31, 2022:

Term Loans Amortized Cost Basis by Origination Year

(000’s omitted)

Term Loans Amortized Cost Basis by Origination Year

December 31, 2022

15 unchanged sentences

(2) FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk.

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

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

September 30,

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 loans as of March 31, 2023 and December 31, 2022 follows:

(000’s omitted)

4 unchanged sentences

Specifically allocated allowance

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

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

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

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

In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan.

Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

The average carrying balance of individually assessed loans was $ 3.1 million and $ 12.3 million for the three months ended March 31, 2023 and 2022, respectively.

No interest income was recognized on individually assessed loans for the three months ended March 31, 2023 and 2022.

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, or interest rate reduction.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of modifications on one loan.

Typically, one type of modification, such as a term extension, is granted initially.

If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

During the three months ended March 31, 2023, the amount of loans that were modified to borrowers experiencing financial difficulty was immaterial.

Prior to the adoption of ASU 2022-02 on January 1, 2023, modified loans were reviewed by the Company to identify if a troubled debt restructuring (“TDR”) had occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

Terms may be modified to fit the ability of the borrower to repay in line with its current financial standing and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

In accordance with the clarified guidance issued by the Office of the Comptroller of the Currency (“OCC”), loans that have been discharged in Chapter 7 bankruptcy, but not reaffirmed by the borrower, are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified.

The Company’s lien position against the underlying collateral remains unchanged.

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

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

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

September 30, 2022

December 31, 2021

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

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

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

The financial effects of these restructurings were immaterial.

Three Months Ended

September 30, 2022

September 30, 2021

(000’s omitted)

loans modified

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Nine Months Ended

September 30, 2022

September 30, 2021

(000’s omitted)

loans modified

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

The amount of TDRs as of December 31, 2022 and the amount of loans modified in a TDR during the three months ended March 31, 2022 were immaterial.

Allowance for Credit Losses

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

Three Months Ended September 30, 2022

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Allowance for credit losses – loans

Liabilities for off-balance-sheet credit exposures

Total allowance for credit losses

Three Months Ended September 30, 2021

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Allowance for credit losses – loans

Liabilities for off-balance-sheet credit exposures

Total allowance for credit losses

Nine Months Ended September 30, 2022

The following presents by loan segment the activity in the allowance for credit losses during the three months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

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

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

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

The allowance for credit losses increased to $ 63.2 million at March 31, 2023 compared to $ 61.1 million at December 31, 2022 and $ 50.1 million at March 31, 2022, reflective of a weaker economic forecast and an increase in loans outstanding.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 23.8 million at March 31, 2023, and is excluded from the estimate of credit losses and amortized cost basis of loans.

Under ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326) , also referred to as “CECL”, the Company utilizes the historical loss rate on its loan portfolio as the initial basis for the estimate of credit losses using the cumulative loss, vintage loss and line loss methods, which is derived from the Company’s historical loss experience from January 1, 2012 to December 31, 2020.

Adjustments to historical loss experience were made for differences in current loan-specific risk characteristics and to address current period delinquencies, charge-off rates, risk ratings, lack of loan level data through an entire economic cycle, changes in loan sizes and underwriting standards, as well as the addition of acquired loans which were not underwritten by the Company.

1 unchanged sentence

Under CECL, the Company is required to consider future economic conditions to determine current expected credit losses.

Management selected an eight-quarter reasonable and supportable forecast period using a two-quarter lag adjustment for economic factors that are not dependent on collateral values, and no lag adjustment for factors that do utilize collateral values, with a four-quarter reversion to the historical mean, to use as part of the economic forecast.

Management 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 for factors that do utilize collateral values, with a four-quarter reversion to the historical mean, to use as part of the economic forecast.

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

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

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

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

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 modest GDP and household income growth and continued deterioration in residential real estate, commercial real estate and used auto prices.

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

1 unchanged sentence

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.

The Company also considered delinquencies, risk rating changes, recent charge-off history and acquired loans as part of the review of estimated losses.

● Business lending – real estate:

3 unchanged sentences

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.

In addition, current delinquencies, 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.

In addition, current delinquencies, charge-offs and acquired loans were considered.

● Consumer direct:

The Company selected projected unemployment and inflation-adjusted household income as indicators of forecasted losses related to consumer direct lending and utilize both factors in an even weight for the calculation.

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

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

(000’s omitted)

All purchases of loans were from the acquisition of Elmira.

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

In addition, current delinquencies, charge-offs and acquired loans were considered.

During the three months ended March 31, 2023, the Company did not purchase any loans, while the Company sold $ 0.5 million of secondary market eligible residential consumer mortgage loans during the period.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

September 30, 2022

March 31, 2023

December 31, 2022

6 unchanged sentences

(000’s omitted)

Oct - Dec 2022

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

Apr - Dec 2023

Shown below are the components of the Company’s goodwill at December 31, 2022 and March 31, 2023:

(000’s omitted)

December 31, 2022

September 30, 2022

MANDATORILY REDEEMABLE PREFERRED SECURITIES

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

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

The trust was formed for the purpose of issuing company-obligated mandatorily redeemable preferred securities to third-party investors and investing the proceeds from the sale of such preferred securities solely in junior subordinated debt securities of the Company.

March 31, 2023

BENEFIT PLANS

2 unchanged sentences

The service cost component of net periodic benefit income is included in the salaries and employee benefits line of the consolidated statements of income, while the other components of net periodic benefit income are included in other expenses.

The Company did not make a contribution to its defined benefit pension plan in the first quarter of 2023.

The Company made a $ 0.1 million contribution to its defined benefit pension plan in the first quarter of 2022.

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

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

The net periodic benefit cost for the three months ended March 31, 2023 and 2022 is as follows:

Pension Benefits

1 unchanged sentence

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

(000’s omitted)

1 unchanged sentence

Expected return on plan assets

Amortization of unrecognized net loss

Amortization of unrecognized net (gain) loss

Amortization of prior service cost

3 unchanged sentences

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

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

The Company has determined that all of its outstanding non-vested stock awards are participating securities as of March 31, 2023.

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

2 unchanged sentences

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

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

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

At March 31, 2023, weighted-average anti-dilutive stock options outstanding were immaterial, compared to approximately 0.2 million for the three months ended March 31, 2022 that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three months ended March 31, 2023 and 2022:

Three Months Ended

Nine Months Ended

September 30,

(000’s omitted, except per share data)

10 unchanged sentences

Stock Repurchase Program

At its December 2020 meeting, the Company’s Board of Directors (the “Board”) approved a stock repurchase program authorizing the repurchase of up to 2.68 million shares of the Company’s common stock, in accordance with securities and banking laws and regulations, through December 31, 2021.

At its December 2021 meeting, the Board approved a new stock repurchase program for 2022, authorizing the repurchase of up to 2.70 million shares of the Company’s common stock, in accordance with securities and banking laws and regulations, through December 31, 2022.

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.

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

Refer to Part II, Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds for additional information regarding repurchases of the Company’s common stock.

There were 200,000 shares of treasury stock purchases made under this authorization during the first quarter of 2023.

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, including 50,000 shares of treasury stock purchases made during the first quarter of 2022.

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

8 unchanged sentences

The contract amounts of commitments and contingencies are as follows:

September 30,

(000’s omitted)

1 unchanged sentence

Standby letters of credit

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

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

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

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 March 31, 2023, 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 the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable.

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.

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

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.

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

7 unchanged sentences

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

September 30, 2022

March 31, 2023

(000’s omitted)

7 unchanged sentences

Equity securities

Mortgage loans held for sale

Commitments to originate real estate loans for sale

Forward sales commitments

Interest rate swap agreements asset

Interest rate swap agreements liability

December 31, 2022

18 unchanged sentences

Level 2 securities include U.S.

agency securities, mortgage-backed securities issued by government-sponsored entities, municipal securities and corporate debt securities that are valued by reference to prices for similar securities or through model-based techniques in which all significant inputs, such as reported trades, trade execution data, LIBOR swap yield curve, market prepayment speeds, credit information, market spreads, and security’s terms and conditions, are observable.

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 D for further disclosure of the fair value of investment securities.

● Mortgage loans held for sale – The Company has elected to value loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts.

Accordingly, the impact on the valuation will be recognized in the Company’s consolidated statements of income.

All mortgage loans held for sale are current and in performing status.

The fair value of mortgage loans held for sale is determined using quoted secondary-market prices of loans with similar characteristics and, as such, has been classified as a Level 2 valuation.

The unpaid principal value of mortgage loans held for sale was approximately $ 0.3 million at March 31, 2023.

There were no mortgage loans held for sale at December 31, 2022.

Mortgage loans held for sale are included in other assets in the consolidated statements of condition.

The unrealized gain on mortgage loans held for sale was recognized in mortgage banking revenues in the consolidated statements of income and is immaterial.

● Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans.

10 unchanged sentences

The determination of expected net cash flows is considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale.

● Interest rate swaps – The interest rate swaps are reported at their fair value utilizing Level 2 inputs from third parties.

● 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.

3 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

(000’s omitted)

Individually assessed loans

Other real estate owned

11 unchanged sentences

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

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

Such discounts are significant, ranging from 9.0 % to 72.8 % at March 31, 2023 and result in a Level 3 classification of the inputs for determining fair value.

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

6 unchanged sentences

Impairment is recognized through a valuation allowance.

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

There is a valuation allowance of approximately $ 0.7 million at March 31, 2023 and December 31, 2022.

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

The contingent consideration is recorded at fair value at the date of acquisition.

The valuation of contingent consideration is calculated using an income approach method, which provides an estimation of the fair value of the liability based on future cash flows over a discrete projection period, discounted to present value using an appropriate rate of return.

The 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.

3 unchanged sentences

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis are as follows:

Unobservable Input

Significant Unobservable

Fair Value at

(000’s omitted, except per loan data)

September 30, 2022

March 31, 2023

Valuation Technique

21 unchanged sentences

$ 3.1 million - $ 5.1 million

Unobservable Input

Significant Unobservable

Fair Value at

4 unchanged sentences

(Weighted Average)

Individually assessed loans

Fair value of collateral

Estimated cost of disposal/market adjustment

9.0 % - 43.1 % ( 43.1 %)

Other real estate owned

19 unchanged sentences

The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date.

The weighted average of the estimated cost of disposal/market adjustment for individually assessed loans was calculated by dividing the total of the book value of the collateral of the individually assessed loans classified as Level 3 by the total of the fair value of the collateral of the individually assessed loans classified as Level 3.

The weighted average of the estimated cost of disposal/market adjustment for OREO was calculated by dividing the total of the differences between the appraisal values of the real estate and the book values of the real estate divided by the totals of the appraisal values of the real estate.

The weighted average of the 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.

3 unchanged sentences

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

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

September 30, 2022

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at March 31, 2023 and December 31, 2022 are presented below.

The table presented below excludes other financial instruments for which the carrying value approximates fair value including cash and cash equivalents, accrued interest receivable and accrued interest payable.

March 31, 2023

December 31, 2022

1 unchanged sentence

Financial assets:

Held-to-maturity securities

Financial liabilities:

7 unchanged sentences

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.

Deposits have been classified as a Level 2 valuation.

1 unchanged sentence

The fair value of time deposit obligations are based on current market rates for similar products.

Borrowings have been classified as a Level 2 valuation.

The fair value of short-term borrowings and securities sold under agreement to repurchase, short-term, is the amount payable on demand at the reporting date.

Fair values for long-term debt are estimated using discounted cash flows and interest rates currently being offered on similar securities.

The difference between the carrying values of long-term borrowings and their fair values, are not material as of the reporting dates.

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 FHLB 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.

6 unchanged sentences

(the “Bank” or “CBNA”) operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in Upstate New York as well as Northeastern Pennsylvania, Vermont and Western Massachusetts.

Employee Benefit Services, which includes the operating subsidiaries Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC, BPAS Trust Company of Puerto Rico, Fringe Benefits Design of Minnesota, Inc.

Employee Benefit Services, which includes the operating subsidiaries of Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC, BPAS Trust Company of Puerto Rico, Fringe Benefits Design of Minnesota, Inc.

(“FBD”), Northeast Retirement Services, LLC (“NRS”), Global Trust Company, Inc.

8 unchanged sentences

Benefit Services

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

Net interest income

Provision for credit losses

Noninterest revenues

Loss on sales of investment securities

Gain on debt extinguishment

Other noninterest revenues

Amortization of intangible assets

1 unchanged sentence

Other operating expenses

Income before income taxes

Income (loss) before income taxes

Core deposit intangibles & Other intangibles

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Net interest income

6 unchanged sentences

Core deposit intangibles & Other intangibles

(000’s omitted)

Benefit Services

Nine Months Ended September 30, 2022

Net interest income

Provision for credit losses

Noninterest revenues

Amortization of intangible assets

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Nine Months Ended September 30, 2021

Net interest income

Provision for credit losses

Noninterest revenues

Amortization of intangible assets

Acquisition expenses

Other operating expenses

Income before income taxes

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

What changed 10-Q

Item 1. Financial Statements